Oil Ticks Lower as Traders Digest OPEC+ Decision to Add Barrels

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(Bloomberg) — Oil eased from a seven-year high as traders waited to see whether OPEC+ can deliver on its latest promised increase in supply.

West Texas Intermediate edged lower after almost striking $90 a barrel on Wednesday. While the Organization of Petroleum Exporting Countries and its allies agreed midweek to a further lift in output, traders are increasingly doubtful that all its members will be able to meet their quotas in full.

Crude has made a powerful start to 2022 and banks including Goldman Sachs Group Inc. say that the world’s most important commodity is on track to hit $100 a barrel. The rally has been underpinned by a revival in demand from the depths of the pandemic, lower stockpiles, and interruptions to supply. 

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“The 400,000-barrel-a-day output hike was largely expected, but market attention is increasingly on OPEC+’s spare capacity,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “Brent still trades a shade below $90 at present, but we maintain our bullish call.”.

Investors continue to track developments over Ukraine amid concerns that Russia may invade, even though Moscow has said it has no such plan. An attack carries the potential to upend energy flows, stoking prices. Oil historian Daniel Yergin said further escalation over Ukraine could send prices to $100 a barrel.

There are tensions in the Middle East, too. The United Arab Emirates said three hostile drones that entered its airspace on Wednesday had been intercepted, days after it fended off a missile attack by fighters based in Yemen.  

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Oil markets remain in backwardation, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt spread — the difference between its nearest two contracts — was $1.35 a barrel. That’s up from 41 cents a barrel on the first trading day of 2022.

In the U.S., declining crude oil stockpiles highlight the market’s steady tightening. Nationwide inventories contracted again last week, according to official figures. Traders had been expecting an increase for the period.

Oil’s surge over recent quarters will fan inflationary pressures, complicating the task for central banks including the U.S. Federal Reserve as they seek to tighten monetary policy without choking off growth. Fed officials have signaled that they are set to start raising interest rates from next month.

Later Thursday investors will get clues on the outlook from producers on either side of the Atlantic, with Shell Plc and ConocoPhillips due to report earnings. 

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