OPEC's Ramp-Up Rattles Market As Analysts Brace For Tariffs Tuesday

Still, bullish signs - including one from China - persist: File Image/Pixabay

The Organization of the Petroleum Exporting Countries' (OPEC) decision to follow through with a planned production increase in April exacerbated demand fears, and as a result two key benchmarks on Monday fell by about 2 percent.

Brent settled down $1.19, or 1.6 percent, at $71.62 per barrel, while West Texas Intermediate settled down $1.39, or 2.0 percent, at $68.37.

The OPEC news came in the wake of ongoing fears over how U.S. president Donald Trump's tariffs against various countries, including Canada and Mexico, and which are scheduled to kick off on Tuesday could hurt demand as well as economic growth.

OPEC on Monday said it would boost production starting April 1 by gradually unwinding its voluntary production cuts of 2.2 million barrels per day (bpd), but the cartel added that it would remain "adaptable to evolving conditions," so the increase "may be paused or reversed subject to market conditions."

Referring to Trump's request in January that OPEC increase output in order to lower oil prices, Tariq Zahir, managing member at Tyche Capital Advisors, told media the cartel and its allies "want to appease Trump, but if you look under the hood, we feel they want to recapture market share they have lost."

While Jon Byrne, an analyst at Strategas Securities, theorized that, "This reinforces the likelihood of US supply undershooting in the year ahead as OPEC takes back market share," he went on to note that the added OPEC supply could compensate for Iran crude flows reduced by additional sanctions from Washington.

Relatively overlooked by traders on Monday was news that the Caixin purchasing managers' index (a gauge of manufacturing activity in China), rose to 50.8 in February from 50.1 in January, the strongest reading since November and a sign of accelerating activity in that country.

Alex Hodes, director of energy-market strategy for StoneX, regarded the data as among several "signs of optimism about oil demand."

In other oil news on Monday, OPEC member Kazakhstan's crude oil and gas condensate output hit a record high of 2.12 million bpd in February, a 13 percent increase from January; excluding gas condensate, crude production increased 15.5 percent m-o-m to 1.83 million bpd.

This is in stark contrast to two weeks ago, when Russia reported that the Caspian Pipeline Consortium capacity was cut by 30-40 percent after an attack by Ukraine drones; but it remains unclear how Kazakhstan managed to ramp up output.