OIL PRICES Lower

Oil prices inched lower in Asian trade on Tuesday, as initial optimism regarding additional supply cuts by Saudi Arabia and OPEC was overshadowed by concerns about slowing economic growth and weakening demand.

 

Although crude markets initially experienced a strong rally in response to Saudi Arabia's announcement of further production cuts on Monday, most of the gains were erased by the end of the session due to weak U.S. economic data, which intensified concerns about a potential recession this year.

 

Saudi Arabia committed to reducing production by an additional 1 million barrels per day (bpd) in July, adding to the total supply cuts of 3.66 million bpd by OPEC since October. However, market participants questioned the tangible impact of lower production targets for other OPEC+ members, particularly Russia, Angola, and Nigeria, as those targets align with their actual output levels.

 

Market sentiment also indicated that any decline in demand would outweigh the impact of tighter supplies this year.

 

Brent oil futures declined by 0.5% to reach $76.17 per barrel, while West Texas Intermediate (WTI) crude futures fell by 0.8% to $71.58 per barrel at 21:30 ET (01:30 GMT). Both contracts had risen as much as 3% on Monday before settling between 0.6% and 0.8% higher.

 

On Monday, data revealed that U.S. service sector activity barely grew in May, indicating that the strong growth witnessed in previous months was losing momentum. This data further highlighted the headwinds facing the U.S. economy, including rising interest rates and high inflation, ahead of the Federal Reserve meeting scheduled for next week.

 

Market participants are divided on whether the central bank will raise or maintain interest rates, as recent weeks have shown mixed signals regarding the bank's stance. Despite surprising upside inflation and labor market data, several Fed officials have called for a pause in rate hikes to assess the impact of the rate increases implemented over the past year, considering the cooling of several aspects of the U.S. economy in recent months.

 

This week, attention is also focused on economic indicators from China, a major crude importer, amid concerns that the post-COVID rebound in the country is losing steam.

 

China's inflation and trade data are expected to provide insights into the country's commodity demand, particularly in light of weak manufacturing activity.

 

However, data released this week indicated that China's services sector experienced stronger growth than expected in May, indicating some resilience in the economy following the lifting of anti-COVID measures earlier this year.