Oil prices declined on Tuesday as concerns about the global economy’s future trumped supply concerns following Saudi Arabia’s decision to limit output in July.
International benchmark Brent crude traded at $75.91 per barrel at 9.55 a.m. local time (0655 GMT), a 1.04% loss from the closing price of $76.71 a barrel in the previous trading session on Friday.
The American benchmark West Texas Intermediate (WTI) traded at the same time at $71.31 per barrel, down 1.16% from the previous session’s close of $72.15 per barrel.
Saudi Arabia’s decision to reduce oil production by 1 million barrels per day (bpd) in July, with the possibility of a further extension, could exacerbate an already-expected oil market imbalance.
Following this decision, International Energy Agency (IEA) head Fatih Birol warned on Monday about further tightening in the market.
‘Before the [OPEC+] meeting, we were already thinking that in the second half of this year, the markets would be tight, which means there could be a possibility that we will see oil prices go up,’ Birol said, warning that the group’s decision ‘increases this possibility a lot.’
Although prices surged on Monday due to impending supply weaknesses following the OPEC+ summit, this was overshadowed by concerns about a worldwide recession following bleak data from the US, the world’s top oil-consuming country.
Economic activity in the US services sector expanded in May for a fifth consecutive month, but its rate of growth slowed down, according to a report released Monday by the Institute for Supply Management (ISM).
The US services sector has grown in 35 of the last 36 months, with the lone contraction in December, according to the ISM. The index hit an all-time high of 69.1% in November 2021.
Investors are now looking forward to statistics from China, which will provide insight into the economy of the world’s second largest oil user and largest oil importer.
