Oil prices sink as markets look past Russia supply cut

By Ambar Warrick

Investing.com -- Oil prices fell on Monday amid anticipation of economic cues from key U.S. inflation data due this week, with markets largely looking past a cut in Russian supply as fears of a global economic slowdown and a staggered Chinese recovery persisted.

Crude prices had rallied sharply last week, with a bulk of gains coming on Friday after Russia said it will cut supply by 500,000 barrels per day in response to western price curbs imposed on its exports over the Ukraine conflict.

But analysts said on Monday that the figure was largely priced in by markets, and that Russia was likely struggling to find buyers for oil amid strict western sanctions on Russian oil exports.

“These cuts do not change our view on the market, given that we were already assuming that Russia would have to reduce supply as a result of the EU ban on oil and refined products. The weakness that we are seeing in prices in early morning trading today likely reflects the market coming to the realization that these cuts are already largely priced in,” analysts at ING wrote in a note.

Brent oil futures fell 0.8% to $85.84 a barrel, while West Texas Intermediate crude futures fell 0.7% to $79.15 a barrel by 21:16 ET (02:16 GMT). Both contracts rallied over 8% last week.

But uncertainty over a global economic slowdown weighed on prices this week, with traders now awaiting more cues from U.S. consumer price index inflation data due on Tuesday. While the reading is expected to show that inflation eased further in January from the prior month, it is still expected to remain relatively high.

This trend could attract more interest rate hikes by the Federal Reserve, weighing on economic growth and potentially denting oil demand later this year.

The dollar rose in anticipation of the inflation reading, also pressuring crude markets by making oil more expensive for international buyers.

Concerns over a Chinese economic recovery also persisted, after data on Friday showed that inflation remained laggard in the country despite the recent easing of anti-COVID restrictions.

The country’s manufacturing sector in particular is still struggling to recover from COVID-linked disruptions, with rising infections also disrupting activity.

Still, a recovery in China is expected to propel crude demand to record highs this year. But markets remain uncertain over the timing of such a recovery, given mixed economic readings in recent weeks.