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Oil Plunges to January Lows on Report of OPEC Increasing Output

(Bloomberg) — Oil extended declines as Saudi Arabia and other OPEC countries were reported to be discussing an output increase alongside China tightening its anti-Covid curbs, hurting the outlook for demand.

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Global benchmark Brent dropped as much as 6% to trade below $83 a barrel, the lowest since January. Declines accelerated after the Wall Street Journal reported OPEC+ is considering an output increase of 500,000 barrels ahead of the EU’s embargo of Russian oil. If confirmed, the production increase would come as market sentiment has shifted, with the price of physical barrels dropping and the US prompt-spread in contango.

The market’s weakness is bleeding into multiple gauges of oil’s supply and demand balance. Brent’s prompt spread briefly traded in contango, an industry term for when current oil prices are cheaper than contracts for delivery further out. The same gauge for WTI’s prompt-spread flipped into contango last week for the first time this year.

China saw its first Covid-related deaths in almost six months over the weekend, just as a city of 11 million near the capital asked residents to stay home amid an outbreak, sparking fears of a further wave of restrictions in the world’s biggest oil importer.

Crude has erased the gains made at the start of the quarter, when the Organization of Petroleum Exporting Countries and allies including Russia agreed to reduce production by 2 million barrels a day. A looming European Union ban on Russian seaborne flows and Group of Seven price-cap plan are clouding the outlook, with officials possibly set to announce the cap’s level on Wednesday as they step up their response to Moscow’s invasion of Ukraine.

Goldman Sachs Group Inc. lowered its fourth-quarter forecast for Brent crude by $10 to $100 a barrel, according to a note, with the reduction driven in part by the possibility of further anti-virus measures in China as cases climb.

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–With assistance from Ilena Peng.

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