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Oil Prices Fall in Asian Trade as Weak Economic Data and Interest Rate Hike Concerns Take Hold

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Oil prices fell in Asian trade on Tuesday as concerns over weak economic data from China and expectations of a U.S. interest rate hike weighed on the market.

Brent crude, against which Nigerian crude oil is priced, was down by 0.3% at $79.07 a barrel while U.S. West Texas Intermediate (WTI) crude fell 0.3% to $75.41 a barrel, with both benchmarks falling by over $1 in their last session.

According to analysts, the weak economic recovery in China is clouding the demand outlook on fuel consumption.

China’s manufacturing activity unexpectedly fell in April, showing the first contraction since December in the manufacturing purchasing managers’ index.

The industrial and economic recovery from the coronavirus pandemic was expected to boost demand this year.

Despite China’s weak manufacturing data, there are positive signs of recovery based on spending during the recent five-day Labor Day holiday in the world’s largest oil importer, with major retail and catering companies seeing a 21% jump in sales year-on-year, based on Ministry of Commerce data.

A record 19.7 million railway trips were also made across the country, and traffic is expected to be 20% higher than in 2019, according to local media.

Meanwhile, a Monday poll showed that U.S. crude oil stockpiles are expected to have fallen for a third consecutive week, providing some support to the market.

The poll was conducted ahead of reports from the American Petroleum Institute, an industry group, due on Tuesday, and the Energy Information Administration, due on Wednesday.

However, the U.S. Federal Reserve is expected to increase interest rates by another 25 basis points, which could impact oil by slowing economic growth and denting energy demand.

Banking fears have also weighed on oil in recent weeks, with the seizure of First Republic Bank over the weekend by U.S. regulators, ahead of a deal in which JPMorgan bought most of its assets.

Oil prices are likely to remain under pressure in the near term, with market participants closely watching for any further developments that may impact demand and supply dynamics.

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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