Oil futures fell Thursday, taking a cue from a decline in global equities after holding their own a day earlier following a decision by the Organization of the Petroleum Exporting Countries and its allies to begin trimming production cuts next month.
West Texas Intermediate crude for August delivery CL.1, -1.06% on the New York Mercantile Exchange was down 37 cents, or 0.9%, at $40.83 a barrel, while September Brent crude BRN00, -0.70%, the global benchmark, was off 29 cents, or 0.7%, at $43.50 a barrel on ICE Europe.
Oil ended at a more than four-month high Wednesday after the OPEC+ alliance agreed to allow record production cuts of 9.7 million barrels per day to decrease to 7.7 million barrels per day starting August, in line with a previous OPEC+ agreement to gradually taper the reductions. At the same time, countries that failed to abide by their quota limits in May and June are required to cut output even more in August to compensate for their overproduction.
However, countries that didn’t meet their quota limits in May and June are expected to reduce production even more starting in August to compensate for their overproduction.
See:OPEC+ move to taper output cuts may ‘keep a floor’ under prices
“Though OPEC+ appears to have the market under control at present, some questions do remain: will production discipline be maintained at a high level? Will the stragglers actually implement their promised cuts? How quickly will the cartel be able to react if the demand outlook worsens again? After all, no matter which way one looks at it, a Brent price of below $45 per barrel is anything but good news for OPEC,” said Eugen Weinberg, analyst at Commerzbank, in a note.
Meanwhile, global equities were under pressure as tensions continue to rise between the U.S. and China.
The Trump administration is weighing a ban that would prevent members of the Chinese Communist Party and their families from traveling to the U.S., The New York Times reported. The Trump administration said Wednesday that it would ban travel for employees of Chinese technology group Huawei and other companies it deems complicit in helping Beijing crack down on human rights in the country. China recently imposed travel restrictions on some U.S. officials, including Sens. Marco Rubio and Ted Cruz.
The U.S. – China tensions appeared to take precedence over upbeat economic data that saw China’s second-quarter gross domestic product expand 3.2% from a year ago, beating an analyst consensus estimate of 2%, and marking a bounce after a 6.8% rout in the first quarter. Analysts said an unexpected fall in Chinese retail sales also dented sentiment for assets perceived as risky.
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