Daily Management Review

Oil Prices Falls As Supply Cuts Are Overshadowed By Economic Headwinds


Oil Prices Falls As Supply Cuts Are Overshadowed By Economic Headwinds
As worries about a worldwide economic slowdown impacted on market sentiment, oil prices dipped on Wednesday, reversing some gains achieved after Saudi Arabia and Russia declared they will extend and intensify supply restrictions until August.
After rising $1.60 on Tuesday, Brent crude was down 46 cents, or 0.6%, at $75.79 a barrel by 0418 GMT.
U.S. West Texas Intermediate (WTI) crude futures were at $70.87 a barrel on Tuesday, up $1.08 or 1.6% from Monday's level, after trading without a settlement during a U.S. holiday to celebrate Independence Day.
"Oil prices came under pressure again due to lingering worries over a slowdown in the global economy and further hikes of interest rates in the United States and Europe," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting.
"The market will likely continue to move back and forth for some time, focusing on economic indicators in China and monetary policy by central banks," he said, predicting Brent would trade around $75 a barrel.
According to a poll conducted by the private sector on Wednesday, China's services industry grew at the weakest rate in five months in June as the momentum of the post-pandemic rebound slowed down due to weaker demand.
The Federal Open Market Committee (FOMC) meeting minutes from June 13–14 will be released later on Wednesday, and the market is anticipating them for additional hints about the outlook of the US central bank.
Due to worries about weak demand and more interest rate increases, which could lead to an economic downturn and further reduce gasoline consumption, the market was only momentarily buoyed by the production curbs announced by Saudi Arabia and Russia on Monday.
The largest crude exporter in the world, Saudi Arabia, announced on Monday that it would continue to reduce its voluntary output by 1 million barrels per day (bpd) through August. In addition, Russia and Algeria offered to reduce their respective August output and export levels by 500,000 and 20,000 bpd.
In response to falling oil prices, OPEC+, a group made up of Organisation of the Petroleum Exporting Countries and allies like Russia that produces about 40% of the world's petroleum, has been reducing oil output since November.
Investors were still worried about the demand for oil, though, when business surveys revealed a decline in global manufacturing activity due to weak demand in China and Europe.
The American Petroleum Institute will release industry data on U.S. crude and product stocks later on Wednesday, and the government will release data on Thursday, both of which will be one day later due to the U.S. holiday. Traders will be watching for demand clues from these data.
According to four analysts surveyed by Reuters, U.S. crude stockpiles were predicted to decrease by approximately 1.8 million barrels in the week ending June 30, marking the third consecutive week of decreases.
"The trajectory of global oil stockpiles may soon become as relevant as OPEC+ supply cuts and macro headwinds given the International Energy Agency's outlook for a tightening oil market in H2 2023," analysts from Commonwealth Bank of Australia said in a note.