(Bloomberg) — Oil swung between gains and losses after OPEC+ laid out a plan to restore some production as early as October, despite concerns about the demand outlook and robust supply from outside the group.
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Production cuts will continue fully in the third quarter and then gradually be phased out over the next 12 months, the Saudi Energy Ministry said on Sunday after an OPEC+ meeting. Brent fell below $81 a barrel and West Texas Intermediate traded below $77.
Goldman Sachs Group Inc. said the decision was bearish given the recent surge in stocks, but UBS Group AG and RBC Capital Markets LLC expressed confidence that the alliance will continue to manage the market diligently. Most analysts had expected OPEC+ to extend restrictions until the end of the year.
Read more: OPEC+ extends cuts, but comes up with plan to reduce barrels
The deal aims to continue supporting oil prices while easing production cuts that have annoyed some member states – such as the United Arab Emirates – as they tried to increase production levels.
“The market did not expect the cuts to end from October,” said Vandana Hari, founder of Vanda Insights in Singapore. “A positive point for OPEC+ is that the agreement should help maintain cohesion. A long-term continuation of lopsided cuts would have been a source of friction.”
Trading volumes were higher than usual on Monday, but skews in oil options still indicate bearishness. So-called puts – which benefit from lower prices – continue to command a large premium over the opposite calls.
Oil closed at a monthly loss on Friday, partly due to continued concerns about the demand outlook for China, the world’s largest crude oil importer. Brent’s fast spread briefly entered a bearish contango structure last week, and fuel markets showed signs of weakness.
Futures are still higher this year after geopolitical tensions from the Middle East and Ukraine raised supply concerns. Israel has reversed US President Joe Biden’s ceasefire plan as the war in Gaza approaches its eighth month.
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