Early Trade Sees Decline in Crude Oil Prices

6 Jun 2023 , 09:10 AM

Tuesday witnessed a slight decline in oil prices following the announcement by Saudi Arabia, the world’s leading exporter, that it would further reduce output the previous day.

The price of Brent crude futures decreased by 23 cents, or 0.3%, settling at $76.48 per barrel, while West Texas Intermediate crude for the United States dropped 25 cents, or 0.4%, reaching $71.90 per barrel.

After Saudi Arabia’s announcement that it would decrease output by 1 million barrels per day (bpd) to 9 million bpd in July, Brent had initially gained as much as $2.6, and U.S. oil had gained as much as $3.3 on Monday.

This voluntary cut, which marks Saudi Arabia’s largest reduction in output in a long time, supplements a broader agreement by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to limit supply until 2024 in an attempt to boost oil prices that have been declining.

OPEC and its allies account for 40% of the world’s crude production.

The organization adjusted targets for Russia, Nigeria, and Angola to align them with current production levels. Therefore, many of the announced reductions following the OPEC summit in Vienna on Sunday may not have a significant impact.

In terms of trade indicators, market investors are currently awaiting the decision of the U.S. Federal Reserve regarding a potential interest rate hike in June. Increased prices in energy might lead to reduced energy usage.

Data released on Monday revealed that the United States services sector experienced only marginal expansion in May due to a slowdown in new orders. This raised expectations that the Fed would postpone interest rate hikes.

According to the CME FedWatch Tool, traders estimated a 78% probability that the Fed would refrain from raising interest rates at its meeting on June 13-14.

While core inflation in the eurozone displayed ‘signs of moderation’ on Monday, European Central Bank President Christine Lagarde emphasized that it was premature to declare a peak in this crucial measure of price growth. This raised expectations for additional interest rate increases from the ECB in the coming months.

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