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Oil Prices Drop Amidst Concerns Over Economic Growth and Rising Interest Rates

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Oil prices saw a decline on Monday as concerns over global economic growth and the outlook for fuel demand weighed heavily on the commodity market.

Brent crude oil, against which Nigerian oil is priced fell by 1.1%, or 86 cents, to $82.52 a barrel while US West Texas Intermediate crude dropped by 1.1%, or 83 cents, to $78.70.

This marks the first weekly decline in five weeks for both oils as the US implied gasoline demand fell from a year earlier. Weak economic data from the US and worse-than-expected corporate earnings from the technology sector have sparked growth concerns among investors.

The stabilizing US dollar and climbing bond yields are also adding pressure on commodity markets, according to CMC Markets analyst Tina Teng.

In addition to all these, central banks from the US, Britain, and Europe are all expected to raise interest rates in the first week of May to tackle high inflation.

China’s economic recovery after the COVID-19 pandemic is also creating uncertainty for oil demand, despite the record volumes of crude oil imports reported in March. The country’s imports from leading suppliers Russia and Saudi Arabia each topped two million barrels per day.

Furthermore, refining margins in Asia have weakened due to record production from top refiners China and India, curbing the region’s appetite for Middle East supplies loading in June.

Despite these economic jitters, analysts and traders had previously predicted robust fuel demand from China in the second half of 2023 and supply tightness from additional supply cuts planned by the OPEC+ producer group starting in May.

Independent oil analyst Sugandha Sachdeva believes that these planned output cuts and China’s strong demand outlook could provide support to oil prices in the coming days.

However, Sachdeva also noted that Brent is likely to find key support around $79 a barrel, while WTI crude support is aligned at $75.

The outlook for oil prices remains uncertain amidst the current economic landscape, but these factors suggest that the future of the oil market will continue to be heavily influenced by global economic trends and government policies.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Saudi Arabia’s Output Cut Pledge Outweighs Weak Chinese Data and Rising US Fuel Stocks, Pushing Oil Prices Higher

The oil market faces a potential massive shortfall as Saudi Arabia’s surprise decision to deepen output cuts overrides concerns over Chinese export data and growing US fuel inventories.

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Crude oil appreciates in the early trading session of Monday as Saudi Arabia pledged to slash its oil production by an additional 1 million barrels per day (bpd) in July.

The announcement prompted oil prices to edge higher on Wednesday, despite weak Chinese export data and rising fuel stocks in the United States.

Brent crude oil, the international benchmark for crude oil, rose by 36 cents, or 0.5% to $76.65 per barrel, while US West Texas Intermediate crude oil gained 37 cents, also at 0.5% to settle at $72.11. These gains followed Monday’s significant surge of both oils, with each jumping over $1 after Saudi Arabia’s decision was made public.

“As things stand, the oil market is on the cusp of a massive shortfall,” said PVM Oil’s Stephen Brennock. “Additional Saudi cuts are expected to deepen the market deficit to more than 3 million bpd in July by some estimates.”

However, prior to the market’s positive response to Saudi Arabia’s announcement, oil prices faced downward pressure due to weak Chinese economic data and increasing US fuel inventories. China’s exports contracted more than anticipated in May, while imports also declined as manufacturers continue to struggle in finding overseas demand to complement sluggish domestic consumption.

Wednesday’s data also showed that crude oil imports into China, the world’s largest oil importer, rose to their third-highest monthly level in May as refiners built up inventories.

A JP Morgan note showed forward crude cover in the country has climbed, indicating refiners have not increased processing rates but are instead storing oil.

Meanwhile, U.S. gasoline inventories rose by about 2.4 million barrels and distillates inventories were up by about 4.5 million barrels in the week ended June 2, the American Petroleum Institute figures showed.

The unexpected build in fuel inventories raised concerns over consumption by the world’s top oil user, especially as travel demand grew during the Memorial Day weekend.

The U.S. Energy Information Administration (EIA) on Tuesday said that U.S crude oil production this year would rise faster and demand increases would be slower than previously expected.

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Crude Oil

Global Oil Prices Appreciate to $77.85 After Saudi Announces Plan to Cut Production

Global oil prices appreciated on Monday morning following Saudi Arabia’s announcement that it will cut crude oil production by 1 million barrels per day (bpd) from the month of July to curb global economic headwinds weighing on the market.

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Global oil prices appreciated on Monday morning following Saudi Arabia’s announcement that it will cut crude oil production by 1 million barrels per day (bpd) from the month of July to curb global economic headwinds weighing on the market.

Brent crude oil, against which Nigerian oil is priced, rose by $1.72, or 2.3%, to $77.85 a barrel by 10:48 am Nigerian time while the U.S. West Texas Intermediate crude also climbed by $1.72, or 2.4%, to $73.46.

Both crude oils gained more than 2% on Friday after the Saudi energy ministry announced that the top exporter would reduce output from 10 million bpd in July to 9 million bpd in May 2024. The biggest of such reduction in years.

The voluntary cut is on top of a broader deal by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to limit supply into 2024 as the OPEC+ producer group seeks to boost flagging oil prices.

OPEC+ pumps about 40% of the world’s crude and has cut its output target by a total of 3.66 million bpd, amounting to 3.6% of global demand.

“Saudi remains keener than most other members in terms of ensuring oil prices above $80 per barrel, which is essential for balancing its own fiscal budget for the year,” said Suvro Sarkar, leader of the energy sector team at DBS Bank.

“Saudi will probably continue doing whatever it takes to keep oil prices elevated … and take calculated pre-emptive steps to ensure the macro concerns potentially affecting demand are negated.”

Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was “moderately bullish” for oil markets and could boost December 2023 Brent prices by between $1 and $6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

“The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today,” the bank’s analysts added.

Many of the OPEC+ reductions will have little real impact, however, as the lower targets for Russia, Nigeria and Angola bring them into line with their actual production levels.

In contrast, the United Arab Emirates (UAE) was allowed to raise output targets by 200,000 bpd to 3.22 million bpd to reflect its larger production capacity.

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Crude Oil

Global Oil Prices Surge as US Lawmakers Suspend Debt Ceiling

Global oil prices appreciated on Friday after the United States lawmakers voted to have the country’s debt ceiling suspended for the next two years.

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Global oil prices appreciated on Friday after the United States lawmakers voted to have the country’s debt ceiling suspended for the next two years. On the final vote, 149 Republicans and 165 Democrats backed the measure, while 71 Republicans and 46 Democrats opposed it.

Brent crude oil, against which Nigerian oil is priced, rose by 77 cents, or 1% to $75.05 a barrel by 9 am while U.S. West Texas Intermediate crude (WTI) was up 69 cents, or 1%, at $70.79.

Markets were reassured by a bipartisan deal to suspend the limit on the U.S. government’s $31.4 billion debt ceiling, which staved off a sovereign default that would have rocked global financial markets.

Earlier signals of a potential pause in rate hikes by the Federal Reserve also provided support to oil prices, not least by weighing on the U.S. dollar , making oil cheaper for holders of other currencies.

Investor attention is now fixed on the June 4 meeting of the Organization of the Petroleum Exporting Countries and allies including Russia, collectively called OPEC+.

OPEC+ in April announced a surprise cut of 1.16 million barrels per day in April, but the gains from that move have since been retraced and prices are below pre-cut levels.

But signals on any fresh cut have been varied, with Reuters reporting and bank analysts indicating that further output cuts are unlikely.

On the demand side, the U.S. Institute for Supply Management (ISM) said its manufacturing PMI fell to 46.9 last month, the seventh-straight month that the PMI stayed below 50, indicating a contraction in activity.

Manufacturing data out of China painted a mixed picture. Thursday’s better-than-expected Caixin/S&P Global China manufacturing PMI contrasted with the previous day’s official government data that reported factory activity in May had contracted to the lowest level in five months.

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