Oil falls ahead of OPEC+ meetings in the US central bank

SINGAPORE, Jan 30 (Reuters) – Oil prices fell on Monday, giving up earlier gains, as global producers this week are likely to keep output unchanged at a meeting this week and investors are cautious ahead of a U.S. Federal Reserve meeting that could lead to market volatility.

Brent crude futures were down 20 cents, or 0.2%, at $86.46 a barrel by 0435 GMT, while US West Texas Intermediate crude was at $79.57 a barrel, down 1[ads1]1 cents, or 0.1 %.

Ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, are unlikely to adjust their current oil production policies when they meet virtually on February 1.

Still, an indication of a rise in crude exports from Russia’s Baltic ports in early February saw Brent and WTI post their first weekly losses in three last week.

“No change in OPEC+ production is expected to be announced at this week’s meeting and we expect outlook comments from the US Federal Reserve to be the key driver of the near-term outlook,” National Australia Bank analysts said in a research note.

Ahead of the Federal Reserve’s policy meeting scheduled for Jan. 31-Feb. 1, the market largely expects the US central bank to scale back rate hikes to 25 basis points (bps) from the 50 bps announced in December, which could ease concerns about an economic slowdown that would dampen fuel demand in the world’s biggest oil consumer.

Oil prices rose earlier on tensions in the Middle East following a drone attack in oil producer Iran and as China, the world’s biggest crude importer, pledged at the weekend to promote a consumption recovery that would support demand for the fuel.

“It’s not entirely clear yet what’s happening in Iran, but any escalation there has the potential to disrupt crude oil flows,” said Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore.

“We have Russia on the supply side and China on the demand side. Both can fluctuate by more than 1 million barrels per day above or below expectations,” said Grasso, a former oil trader at Italy’s Eni.

“China appears to have surprised the market in terms of how quickly they emerge from zero COVID, while Russia has surprised in terms of the resilience of export volumes despite the sanctions.”

China resumes business this week after its Lunar New Year holiday. The number of passengers traveling before the holiday rose above the levels of the past two years but remains below 2019, Citi analysts said in a note, citing data from the Department of Transportation.

“Overall international traffic recovery remains gradual, with high singles to low-teens to 2019 levels, and we expect further recovery when outbound tour group travel resumes on February 6,” the Citi note said.

Reporting by Florence Tan and Emily Chow; Editing by Muralikumar Anantharaman and Christian Schmollinger

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