Oil markets await new signals as demand fears offset supply cuts
Oil prices have barely moved in this morning’s trading, with concerns over demand growth amid challenging economic headwinds offsetting expectations of tighter supplies later in the year.
Markets are now awaiting a change of investor sentiment, with both major benchmarks nearly flat at the beginning of the week.
Brent Crude is down 0.2 per cent, trading at $75.26 per barrel while WTI Crude has slipped 0.25 per cent to $70.46, with prices settling approximately one per cent up on Friday at close of play.
Craig Erlam, senior markets analyst at Oanda saidL “Broadly speaking, it’s range-bound as it has been since early May, and showing little signs of breaking in either direction. The range is getting very gradually smaller but at such a slow pace that it doesn’t really tell us much at this point.
“It very much feels like traders are awaiting more information on inflation and, by extension, interest rates, and until we have a better idea of the outlook, it could remain in this pattern.”
While prices have shown signs of consolidation in recent week, Brent Crude has now fallen for four consecutive quarters after last spring’s historic rally – while WTI Crude has also reported six months of declining prices.
This comes as growth across the world’s top two largest economies and oil consumers, the US and China, flagged in the second quarter.
More interest rate hikes are expected from the Federal Reserve this year, the world’s most influential central bank, to combat inflation – which is likely to strengthen the dollar and make oil more expensive for international buyers, cutting demand.
In China, activity growth across factories slowed last month, weighed down by sluggish market conditions, according to the Caixin and S&P Global private sector survey.
Nevertheless, OPEC and the International Energy Agency still expect demand to tighten in the second half of the year – which should cause prices to rebound.
This could be catalysed by further cuts from OPEC and its allies, known as OPEC+, with the cartel set to meet later this week to discuss supplies.
It has already pledged 3.7m barrels per day in output cuts.