Crude oil prices drop in early trade

24 Jul 2023 , 12:04 PM

Brent, which is currently trading at $80 a barrel, is supported by tighter supply and expectations for Chinese stimulus. Oil prices dropped on Monday as traders awaited additional rate hike hints from the US and European central banks.

Brent crude futures had fallen 41 cents, or 0.5%, to $80.66 per barrel. American West Texas Intermediate crude was down 37 cents or 0.5% at $76.70 a barrel.

The benchmarks increased 1.5% and 2.2% last week, respectively, marking their fourth consecutive week of gains as supply is anticipated to become tighter as a result of OPEC+ cuts. Following Russia’s withdrawal from a deal for a safe maritime passage for grain exports that had been mediated by the U.N., fighting also erupted in Ukraine last week.

While this week’s additional Fed rate hike may cause some short-term price volatility, National Australian Bank analysts predict that tightening market conditions due to OPEC’s supply cuts and growing market speculation of additional Chinese stimulus will drive prices higher through 3Q23.

The focus will be on what Fed Chair Jerome Powell and ECB President Christine Lagarde say about upcoming rate hikes since investors have priced in quarter-point increases from the Federal Reserve and European Central Bank this week. 

Rising interest rates have discouraged investment and bolstered the dollar, increasing the cost of commodities denominated in other currencies for holders of other currencies.

Market participants anticipate Beijing to implement targeted stimulus measures to help the economy of this second-largest consumer of oil, which will likely increase oil demand globally.

Suhail al-Mazrouei, the energy minister for the United Arab Emirates, stated on Friday that the initiatives taken by OPEC+ to stabilize the oil market are sufficient at this time and that the group is ‘only a phone call away’ if any additional actions are required.

According to energy services company Baker Hughes, American energy companies reduced the number of active oil rigs last week by the most since early June, by seven, to 530.

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