Fears of a global economic slowdown cause oil prices to fall in early trade

3 Jul 2023 , 11:51 AM

As global macroeconomic challenges and potential future interest rate increases from the U.S. Federal Reserve outweighed expectations of tighter supplies due to OPEC+ cuts, oil prices declined in early Asian trade on Monday.

Following a 0.8% gain on Friday, Brent crude futures were down 20 cents, or 0.3%, at $75.21 per barrel. U.S. West Texas Intermediate crude was trading at $70.41 per barrel, down 23 cents or 0.3% from the previous session’s closing price, which was up 1.1%.

By the end of June, Brent had declined for four quarters in a row, while WTI had experienced a second quarterly decline as the world’s two largest economies, the U.S. and China, slowed down.

After statistics on Friday showed U.S. inflation was still above the central bank’s 2% objective and fueled anticipation it will raise interest rates again, concerns about a further downturn harming fuel demand increased.

The National Australia Bank analysts wrote in a note that ‘hawkish commentary on rates continues to raise concerns about the demand outlook weighing on prices.’

Higher interest rates might weaken the dollar, increasing the cost of commodities for holders of other currencies while potentially reducing oil demand.

The monthly private sector manufacturing PMI survey for China in June, which will be released by Caixin later on Monday, is anticipated to decline slightly from May.

According to the June Reuters oil poll, economists and analysts now expect the average Brent price in 2023 to be $83.03 a barrel.

Although the United States is steadily restocking its Strategic Petroleum Reserve, some analysts anticipate that supplies will get tighter and prices will rise in the second half after leading exporter Saudi Arabia committed a further 1 million barrels per day output cut in July.

As the market is anticipated to enter deficit in the second half of 2023, NAB analysts said they still see upside from current levels.

The most recent Reuters survey, however, revealed that OPEC oil output decreased only marginally in June as rises in Nigeria and Iraq offset the effects of other countries’ reductions.

Investors are anticipating information on supply at a summit later this week that is being sponsored by the Organization of the Petroleum Exporting Countries (OPEC).

According to Baker Hughes statistics, U.S. gas rigs dropped six to 124 last week, their lowest level since February 2022, while oil rigs dropped one to 545 last week, their lowest level since April 2022.

The U.S. Energy Information Administration said on Friday that U.S. crude production decreased in April to 12.615 million barrels per day (bpd), its lowest level since February.

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