OPEC and other supply-cutting countries led by Russia on Tuesday finalized plans to prop up oil prices, which have taken sharp drops in recent months as a slowing global economy depressed the outlook for demand.
The 14-member cartel — along with 10 other major crude producers — said they would continue to limit the amount of oil in the world market. The extended agreement to cut 1.2 million barrels per day through March 2020 was expected to at least temporarily support prices.
Yet oil prices remained depressed following the announcement, signaling that concerns about a slowdown in growth have overwhelmed expectations for lower supply. Brent, the global benchmark, was down 3% to about $63 per barrel Tuesday. West Texas Intermediate shed more than 3.5% to trade just over $57.
The global economy is seen slowing in the coming months, a scenario expected to dampen consumer demand for fuel. Those concerns have grown louder following weaker than expected manufacturing data and amid ongoing trade disputes.
"Trade tensions and global growth concerns have weighed on oil demand since early May," said Mark Haefele, the global chief investment officer at UBS.
President Donald Trump has slapped tariffs on large swaths of imports to the US, drawing retaliatory measures from some of the largest trading partners. The Organization for Economic Cooperation and Development recently estimated escalations in those trade wars could wipe out $600 billion from the world economy.
"The outlook for commodity prices is sensitive to policy-related risks, especially for oil," Ayhan Kose, the director of the World Bank's Prospects Group, said in April.
OPEC will walk a fine line between trade disputes and other geopolitical disputes, however, which could put oil supply at risk and bolster prices. Tensions between the US and Iran have escalated dramatically in recent weeks, raising fears about a potential military confrontation in the energy-rich Middle East region.
"Of course, the Iran crisis loomed large over the meeting even if it was not called out publicly by name," said Helima Croft, the head of commodities at RBC.
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