Oil prices rose on Tuesday after OPEC+ plans to cut more production jolted markets the previous day, with investors' attention shifting to demand trends and the impact of higher prices on the global economy.
Brent crude futures were up 42 cents, or 0.5%, to $85.35 a
barrel by 0632 GMT. U.S. West Texas Intermediate (WTI) crude futures were
trading at $80.85 a barrel, up 43 cents, or 0.5%.
Both benchmarks jumped more than 6% on Monday after the
Organization of the Petroleum Exporting Countries (OPEC) and allies including
Russia, collectively known as OPEC+, rocked markets with Sunday's announcement
of plans to lower output targets by a further 1.16 million barrels per day
(bpd).
The latest pledges bring the total volume of cuts by OPEC+
to 3.66 million bpd including a 2 million barrel cut last October, according to
Reuters calculations - equal to about 3.7% of global demand.
"The buying spree from the OPEC+ output cut has calmed
down and market attention has shifted to the future demand outlook," said
Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
"In the short term, demand is expected to rise for the
summer driving season, but higher oil prices may intensify inflationary
pressures and prolong interest rate hikes in many countries, which could dampen
demand," he said.
Kikukawa also noted the impact could reignite concerns about
the global financial industry.
The OPEC+ production curbs led most analysts to raise their
Brent oil price forecasts to around $100 per barrel by year-end. Goldman Sachs
lifted its forecast for Brent to $95 a barrel by the end of this year, and to
$100 for 2024.
The news added to investor worries about higher costs for
businesses and consumers, raising fears an inflationary jolt to the world
economy from rising oil prices will result in more rate hikes.
Market watchers have been trying to gauge how much longer
the U.S. Federal Reserve may need to keep raising interest rates to cool
inflation, and whether the U.S. economy may be headed for recession.
U.S. manufacturing activity slumped to the lowest level in
nearly three years in March and could decline further on tighter credit and
higher borrowing costs.
"If crude oil can break above the strong band of
resistance at $82/$83, it could get back to the mid to low $90s, but there will
be sellers queuing up to sell at those levels," said Tony Sycamore, a
market analyst at IG in Sydney.
"But for anything more than that something has to
change dramatically from the demand side of the equation," he said..-Reuters