Oil Prices Decline In Early Asian Trade On Economic Concerns

Oil Prices Decline In Early Asian Trade On Economic Concerns

Oil prices decline in early Asian trade on economic concerns

Oil prices experienced a decline in early Asian trade on Monday as global macroeconomic uncertainties and the possibility of further interest rate hikes by the US Federal Reserve offset predictions of tighter supplies resulting from OPEC+ cuts.

Brent crude futures dropped by 20 cents, or 0.3 per cent, to USD 75.21 a barrel at 0044 GMT, following a 0.8 per cent increase on Friday. Meanwhile, US West Texas Intermediate crude stood at USD 70.41 a barrel, down 23 cents, or 0.3 per cent, after a 1.1 per cent gain in the previous session. Brent crude recorded its fourth consecutive quarterly decline by the end of June, while WTI marked its second quarterly drop, reflecting a slowdown in the world’s two largest economies, the US and China, during the second quarter.

Growing concerns about a further economic deceleration impacting fuel demand were amplified by data released on Friday, which revealed that US inflation continues to outpace the Federal Reserve’s target of 2 per cent, further fueling expectations of interest rate hikes.

Economists and analysts have revised down their Brent price forecasts, now averaging at USD 83.03 per barrel in 2023, according to the June Reuters oil poll.

Nonetheless, some analysts anticipate a tightening of supplies in the second half of the year, leading to higher prices. This expectation is driven by Saudi Arabia’s commitment to an additional one million barrels per day output cut in July and the gradual replenishment of the US Strategic Petroleum Reserve.

The most recent Reuters survey indicated that OPEC oil output only experienced a marginal decline in June, as increases in Iraq and Nigeria limited the impact of cutbacks by other member countries.

Investors are closely observing the upcoming conference hosted by the Organization of the Petroleum Exporting Countries (OPEC) later this week, as it may provide insights into future supply dynamics. Baker Hughes data revealed that US oil rigs dropped by one to 545 last week, the lowest level since April 2022, while gas rigs fell by six to 124, reaching their lowest point since February 2022.

Furthermore, the US Energy Information Administration reported on Friday that US crude output in April reached its lowest level since February, standing at 12.615 million barrels per day (bpd).

In summary, oil prices in Asian trade have declined due to concerns over global economic conditions and the potential for interest rate hikes. However, expectations of tightening supplies and decreased output, along with factors such as Saudi Arabia’s production cut and the gradual replenishment of the US Strategic Petroleum Reserve, may lead to upward price movements in the second half of the year.

(Inputs from Reuters)

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