Oil prices ease on fears of weaker demand
Oil prices fell on Monday as concerns about a global economic slowdown and possible further interest rate hikes from the US Federal Reserve weighed on prices, offsetting forecasts of tighter supplies amid OPEC+ cuts.
Brent crude futures were last down 0.4 per cent, or 27 cents, to $75.14 a barrel by 0630 GMT after settling up 0.8 per cent on Friday. US West Texas Intermediate crude was at $70.36 a barrel, down 0.4 per cent or 28 cents, after closing 1.1 per cent higher in the previous session.
Brent fell for the fourth straight quarter by the end of June while WTI notched a second quarterly drop as the world’s top two economies, the US and China, lost speed in the second quarter.
Fears of a further slowdown hurting fuel demand grew after data on Friday showed US inflation still outpacing the central bank’s 2 per cent target and stoked expectations it would hike interest rates again.
“Hawkish commentary on rates continues to raise concerns of the demand outlook weighing on prices,” National Australia Bank analysts said in a note.
Higher interest rates could strengthen the greenback, making commodities more expensive for holders of other currencies, and also dampen oil demand.
Economists and analysts have lowered their Brent price forecasts to average at $83.03 a barrel in 2023, in the June Reuters oil poll.
Factory activity growth in China, the world’s largest crude importer, also slowed in June as sentiment and recruitment cooled on the back of sluggish market conditions, according to the Caixin/S&P Global private sector survey.
Still, some analysts expect supplies to tighten and push prices higher in the second half after top exporter Saudi Arabia pledged an extra 1 million barrels per day output cut in July, while the US is gradually replenishing its Strategic Petroleum Reserve.
“OPEC+’s multi-output-cuts have kept oil prices above key levels, which may see a further production reduction by the cartel to keep the crude market’s stability,” said Tina Teng, an analyst at CMC Markets.
However, the latest Reuters survey showed OPEC oil output has fallen only slightly in June as increases in Iraq and Nigeria limited the impact of cutbacks by others.
Investors are looking ahead to a conference later this week hosted by the Organization of the Petroleum Exporting Countries (OPEC) for supply cues.
US oil rigs fell by one to 545 last week, their lowest level since April 2022, while gas rigs fell six to 124, their lowest since February 2022, Baker Hughes data showed.
US crude output fell in April to 12.615 million barrels per day (bpd), its lowest since February, the US Energy Information Administration said on Friday.