Oil falls amid data, mixed worries

Oil prices fell nearly 3% on Monday, following US service sector data that has added to worries that the Fed could continue its aggressive policy tightening path. So, the data caused oil and stock markets to pare gains.

Brent crude futures were down $2.18, or 2.6%, at $83.39 a barrel by 1:23 p.m. EST (1823 GMT). West Texas Intermediate crude (WTI) fell $2.28, or 2.9%, to $77.70 a barrel. Both benchmarks had earlier risen more than $2, reversing direction.

WTI front-month contract began trading lower than prices in half a year, a market structure called contango, which implies oversupply.

The data challenges hopes that the Fed might slow the pace and intensity of its rate hikes amid recent signs of ebbing inflation.

Supporting the market earlier, the Organization of the Petroleum Exporting Countries and allies including Russia, together called OPEC+, agreed on Sunday to stick to their October plan to cut output by 2 million barrels per day (bpd) from November through 2023.

The decision is not a surprise, given the uncertainty in the market over the impact of the December 5 EU Russia crude oil import ban and the G7 price cap. In addition, the producers’ group faces downside risk from the potential for weakening global economic growth and China’s zero COVID policy.

The Group of Seven (G7) countries and Australia last week agreed on a $60 a barrel price cap on seaborne Russian oil. At the same time, in a positive sign for fuel demand in the world’s top oil importer, more Chinese cities eased COVID curbs over the weekend.

Business and manufacturing activity in China, the world’s second-largest economy, have been hit this year by strict measures to curb the spread of the coronavirus.

Oil price has been in a phase of distribution for the month of December, so far, following a break of a major bear channel from the technical point of view. WTI was seen moving into prior highs and this had swept liquidity where a schematic of distribution was being recorded.