Oil prices fall despite output cuts
July 4, 2023 11:18 AM
Oil prices reversed into the red Monday on global growth concerns, despite fresh output cuts by key producers Saudi Arabia and Russia aimed at propping up prices.
Although Asian stock markets advanced as easing inflation data fuelled hopes that central banks could be nearing the end of their interest rate hiking cycle, European stocks ended mostly lower.
Meanwhile, Wall Street stocks edged up to end a shortened trading session, with investor sentiment subdued on the eve of the Independence Day holiday in the United States.
Data showing that the slump in US manufacturing continued for an eighth straight month in June, on the back of weak demand and slowing production, also dampened sentiment.
Brent crude, the international benchmark, and US counterpart WTI initially jumped after Riyadh extended a voluntary oil production cut of one million barrels per day (bpd), while Moscow -- whose invasion of Ukraine last year sparked oil market turmoil -- said it was slashing exports by 500,000 bpd.
But the gains evaporated as traders continued to digest the news from the two biggest members of the OPEC+ producers' alliance.
Both Brent and WTI lost at least one percent at day-end.
"It's the usual knee-jerk reaction to reports of production cuts," IG analyst Chris Beauchamp told AFP.
"But given... it's not a coordinated move from all (OPEC+) members it seems hard to imagine there's much more upside in this."
He also warned that "the outlook for oil demand remains firmly under pressure" with many analysts forecasting recession next year.
Recent efforts by OPEC+ members to bolster prices by reducing output have not succeeded.
In April, several OPEC+ members opted to slash production voluntarily by more than one million bpd -- a surprise move that briefly raised prices but failed to bring about lasting price recovery.
City Index analyst Fawad Razaqzada said this was primarily due to Russia producing and selling more oil than agreed and "judging by the somewhat muted response" on the oil market "traders clearly want to see evidence that Russia will be complying."
Brent and the WTI are both down since the start of 2023, as a sluggish recovery in China and worries about a possible economic downturn cloud the outlook.
Recession concerns in the Western world continue to weigh on oil market sentiment, added UBS analyst Giovanni Staunovo.
"We continue to expect the oil market to tighten, and this should lift oil prices," he said. "But financial investors will likely stay cautious in the short term."
- 'Stubborn' inflation -
Stock markets had jumped Friday as data showed inflation cooling in both the United States and Europe, while Apple ended a session above $3 trillion in market value for the first time.
The personal consumption expenditures (PCE) price index -- a US inflation measure closely watched by the Federal Reserve -- dropped in May to 3.8 percent year-on-year from 4.3 percent in April.
In Europe, figures showed eurozone consumer prices rose 5.5 percent in June, slowing from 6.1 percent in May thanks to a drop in energy costs.
The Federal Reserve and the European Central Bank have warned that more interest rate hikes are likely, though the latest data raised hopes they could soon wind down their monetary tightening.
"Inflation is proving to be more stubborn than many had thought. Now, monetary policy must prove more persistent and consistent than many would have expected," German central bank chief Joachim Nagel warned on Monday.
- Key figures around 2030 GMT -
Brent North Sea crude: DOWN 1.0 percent at $74.65 per barrel
West Texas Intermediate: DOWN 1.2 percent at $69.79 per barrel
New York - Dow: UP less than 0.1 percent at 34,418.47 points (close)
New York - S&P 500: UP 0.1 percent at 4,455.59 (close)
New York - Nasdaq: UP 0.2 percent at 13,816.77 (close)
London - FTSE 100: DOWN less than 0.1 percent at 7,527.26 (close)
Paris - CAC 40: DOWN 0.2 percent at 7,386.70 (close)
Frankfurt - DAX: DOWN 0.4 percent at 16,081.04 (close)
EURO STOXX 50: FLAT at 4,398.15 (close)
Tokyo - Nikkei 225: UP 1.7 percent at 33,753.33 (close)
Hong Kong - Hang Seng Index: UP 2.1 percent at 19,306.59 (close)
Shanghai - Composite: UP 1.3 percent at 3,243.97 (close)
Euro/dollar: FLAT at $1.0912 from $1.0909 on Friday
Pound/dollar: DOWN at $1.2685 from $1.2703
Dollar/yen: UP at 144.67 yen from 144.31 yen
Euro/pound: UP at 86.00 pence from 85.88 pence