Oil prices experienced a decline on Wednesday, reversing earlier gains prompted by Saudi Arabia and Russia’s announcement to extend and deepen output cuts into August. The market sentiment was weighed down by concerns over a global economic slowdown. U.S. West Texas Intermediate (WTI) crude futures stood at $70.87 per barrel, reflecting a $1.08 or 1.6% increase from Monday’s closing price. It is worth noting that trading continued during the U.S. Independence Day holiday, leading to no settlement.
The downward pressure on oil prices can be attributed to persistent worries about the global economy’s deceleration and the potential for further interest rate hikes in the United States and Europe. Tomomichi Akuta, a senior economist at Mitsubishi UFJ Research and Consulting, stated that the market is likely to fluctuate for a while, with focus placed on China’s economic indicators and the monetary policies implemented by central banks. Akuta predicted that Brent crude would trade around $75 per barrel.
A recent private-sector survey unveiled on Wednesday disclosed that China’s services sector expansion recorded its slowest pace in five months in June. The recovery momentum from the post-pandemic period was hindered by weakening demand. Despite the announcement of production cuts by Saudi Arabia and Russia on Monday, the market experienced only a brief uplift. Lingering concerns over weak demand and the possibility of additional interest rate hikes, which could trigger an economic downturn and further dampen fuel demand, overshadowed the impact of the output cuts.
In conclusion, oil prices faced a decline as the market sentiment was influenced by fears of a global economic slowdown. The extension and deepening of output cuts by Saudi Arabia and Russia failed to outweigh concerns surrounding weak demand and potential interest rate hikes. The market is expected to remain volatile, with a keen focus on economic indicators in China and central banks’ monetary policies.- Source: Reuters
