Oil prices slip on global economic slowdown fears

Oil prices slipped in early Asian trade on Monday as global macroeconomic headwinds and possible further interest rate hikes from the U.S. Federal Reserves offset forecasts of tighter supplies amid OPEC+ cuts.

Brent crude futures dropped 20 cents, or 0.3%, to $75.21 a barrel by 0044 GMT after settling up 0.8% on Friday. U.S. West Texas Intermediate crude was at $70.41 a barrel, down 23 cents, or 0.3%, after closing 1.1% higher in the previous session.

Brent fell for the fourth straight quarter by the end of June while WTI notched a second quarterly drop as the world’s top two economies, the U.S. and China, lost speed in the second quarter.

Fears of a further slowdown hurting fuel demand grew after data on Friday showed U.S. inflation still outpacing the central bank’s 2% target and stoked expectations it would hike interest rates again.

“Hawkish commentary on rates continues to raise concerns of the demand outlook weighing on prices,” National Australia Bank analysts said in a note.

Higher interest rates could strengthen the greenback, making commodities more expensive for holders of other currencies, and also dampen oil demand.

Later on Monday, Caixin will release its monthly private sector manufacturing PMI survey for China in June which is expected to drop slightly from May.

Economists and analysts have lowered their Brent price forecasts to average at $83.03 a barrel in 2023, in the June Reuters oil poll.

Still, some analysts expect supplies to tighten and push prices higher in the second half after top exporter Saudi Arabia pledged an extra 1 million barrels per day output cut in July, while the U.S. is gradually replenishing its Strategic Petroleum Reserve.

“We continue to see upside from current levels as the market is expected to move into deficit in the 2H 2023,” NAB analysts said.

However, the latest Reuters survey showed OPEC oil output has fallen only slightly in June as increases in Iraq and Nigeria limited the impact of cutbacks by others.

Investors are looking ahead to a conference later this week hosted by the Organization of the Petroleum Exporting Countries (OPEC) for supply cues.

U.S. oil rigs fell by one to 545 last week, their lowest level since April 2022, while gas rigs fell six to 124, their lowest since February 2022, Baker Hughes data showed.

U.S. crude output fell in April to 12.615 million barrels per day (bpd), its lowest since February, the U.S. Energy Information Administration said on Friday.

Reuters

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