(Bloomberg) — Oil swung between gains and losses after OPEC+ outlined a plan to restore some production as early as October, despite concerns about the demand outlook and the robustness of supply from outside the group.
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Production cuts will continue in full in the third quarter, then be phased out over the following 12 months, the Saudi Energy Ministry announced 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 move was bearish given the recent surge in inventory, but UBS Group AG and RBC Capital Markets LLC expressed confidence the alliance will continue to diligently manage the market. Most analysts expected OPEC+ to extend restrictions until the end of the year.
Read more: OPEC+ extends cuts but presents plan to bring barrels back
The deal aims to continue supporting oil prices while easing production restrictions that some members – such as the United Arab Emirates – have chafed at as they seek to improve their production levels.
“The market did not expect the October cuts to be lifted,” said Vandana Hari, founder of Vanda Insights in Singapore. “On the positive side for OPEC+, the agreement should help maintain cohesion. The long-term continuation of unbalanced cuts would have been a source of friction.”
Trading volumes were higher than usual on Monday, but oil options biases still signal a bearish trend. So-called puts – which benefit from lower prices – remain far superior to opposing calls.
Oil capped its monthly loss Friday in part because of lingering concerns about the demand outlook from China, the world’s largest crude importer. The Brent fast spread briefly slipped into a bearish carryover structure last week, and fuel markets showed signs of weakness.
Futures are running even higher this year after geopolitical tensions from the Middle East to Ukraine sparked supply concerns. Israel has rejected a ceasefire plan presented by US President Joe Biden as the war in Gaza approaches its eighth month.
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