WORLD | Jun 6, 2023

Oil prices fall back from short-lived rally

/ Our Today

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Economic concerns outweighing the impact of further OPEC+ cuts

Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018. (Photo: REUTERS/Nick Oxford/File)

Yesterday witnessed one of the shortest oil price rallies following an OPEC+ meeting.

The announcement of an additional production cut of around 800,000 barrels per day (bpd) by the oil-producing group pushed Brent crude and West Texas Intermediate slightly higher during the day but by this morning the momentum had fizzled out and both key benchmarks were down. 

At the time of publication reported that Breant crude was trading at US$76.52 per barrel with West Texas Intermediate at US$71.93 per barrel, both down, although by less than half a percentage point from yesterday. 

Results from yesterday’s trading

During yesterday’s trading session, Brent crude added some US$2.60 per barrel and WTI jumped by over US$3 per barrel. It appears that traders are unconvinced about the importance of any further cuts from OPEC+ as worry about the state of the global economy prevails. 

FILE PHOTO: Oil tanker Kerala, chartered by Chevron, is being loaded in the Bajo Grande oil terminal at Maracaibo Lake, in the municipality of San Francisco, Venezuela, January 5, 2023. REUTERS/Isaac Urrutia/File Photo

On Sunday, Saudi Arabia announced that it would implement voluntary cuts of 1 million bpd but the UAE was allowed to raise its output by about 200,000 bpd. “Supply side issues took centre stage following OPEC’s production cuts. However, the gains were limited amid ongoing concerns over the economic backdrop,” analysts from ANZ said in a note cited by Reuters earlier today.

On the other hand, “the U.S. economy is about to show a very robust summer travel season that should mean gasoline and jet fuel demand is going to be very strong,” according to Edward Moya from OANDA, also cited by Reuters.

Data from the U.S. manufacturing sector shows that the sector has been shrinking for seven months in a row, which fits in with the definition of a recession, which has dampened demand for fuels and reinforced a bearish sentiment among oil traders.

On the other hand, summer driving season is peak demand season and with prices at the pump much lower than they were this time last year, it could live up to its name, possibly changing traders’ sentiment.