NEW YORK (Reuters) – Oil prices fell nearly 3 percent on Monday after U.S. stock markets slumped after U.S. service sector data raised concerns that the Federal Reserve may continue its aggressive policy tightening path.
Brent crude futures fell $2.18, or 2.6%, to $83.39 a barrel by 1:23 pm EST (1823 GMT). West Texas Intermediate crude fell $2.28, or 2.9%, to $77.70 a barrel. Both benchmarks earlier rose more than $2, reversing the trend.
The front month WTI contract began trading below the prices in half a year, a market structure called contango, which means oversupply.
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The news caused oil and stock markets to cut gains.
The data defies hopes that the Fed may slow the pace and intensity of interest rate hikes amid recent signs of abating inflation.
“Macroeconomic concerns about the Fed and what they’re going to do with interest rates are dominating the market,” said Phil Flynn, an analyst at Price Futures Group.
Supporting the market earlier, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, called the OPEC+ community, agreed on Sunday to stick to October’s plan to cut production by two million barrels per day from November until 2023.
“The decision … is not a surprise, given the uncertainty in the market about the impact of the December 5 import ban on crude oil from Russia and the G7 price cap,” said Anne-Louise Hittle, vice president at consultancy Wood Mackenzie. .
“In addition, the producer group faces downside risks from the potential for weakening of global economic growth and China’s non-coronavirus policy.”
The G7 countries and Australia agreed last week to a cap of $60 a barrel for Russian oil carried by sea.
Meanwhile, in a positive sign for fuel demand in the world’s largest oil importer, more Chinese cities eased COVID restrictions over the weekend.
Business and manufacturing activity in China, the world’s second-largest economy, has been hit this year by strict measures to curb the spread of the coronavirus.
(Reporting by Stephanie Kelly in New York). Additional reporting by Noah Browning in London, Sonali Paul in Melbourne and Emily Chow in Singapore Editing by Margarita Choi and David Goodman
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