Oil rose as market attention turned to the demand outlook and the impact of higher prices on the global economy
Oil rose on Tuesday after OPEC+'s plans to cut production further rattled markets the previous day, as investors' attention turned to demand trends and the impact of higher prices on the global economy.
Brent crude futures rose 42 cents, or 0.5%, to $85.35 a barrel as of 0632 GMT. West Texas Intermediate (WTI) crude futures were up 43 cents, or 0.5%, at $80.85 a barrel.
Both indicators rose more than 6% on Monday after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, shook markets on Sunday, announcing plans to cut production targets by another 1.16 million barrels per day.
According to calculations, the latest commitments bring OPEC+'s total cut volume to 3.66 million bpd, including the 2 million bpd cut last October, which is roughly 3.7% of global demand.
As the buying frenzy from the OPEC+ production cut has calmed down, the market's attention has shifted to the future demand outlook and the impact of higher prices on the global economy.
The impact is likely to rekindle concerns about the global financial industry. In the short term, demand is expected to increase for the summer driving season, but higher oil prices could intensify inflationary pressures and prolong rate hikes in many countries, which could reduce demand.
OPEC+ production cuts have prompted most analysts to raise their Brent oil price forecasts to around $100 a barrel by year's end. There are also those who have increased their Brent oil forecast to $95 a barrel by the end of this year and to $100 for 2024.
Added to investors' concerns about higher costs for businesses and consumers, the news raises fears that an inflationary jolt from rising oil prices to the world economy will lead to further rate hikes.
Market watchers are trying to gauge how long the US Federal Reserve may have to keep raising interest rates to keep inflation down and whether the US economy will fall into recession.
U.S. manufacturing activity fell to its lowest level in nearly three years in March and could fall further with tighter credit and higher borrowing costs.
If crude can break the strong resistance band at $82/$83, it could bounce back to the mid-$90s and there should be sold-off at these levels. But for more than that, something on the demand side of the equation could change dramatically.
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