Oil prices were steady in Friday trade as the prospect of tighter supply with output cuts from top oil exporters Saudi Arabia and Russia and a bigger-than-expected drop in U.S. oil stocks were offset by worries over a sluggish demand recovery in China. U.S. crude stocks fell by about 4.4 million barrels in the week ended June 30, while gasoline and distillate inventories rose, according to market sources citing American Petroleum Institute figures.
Oil prices steady a worry
Brent crude futures settled 13 cents lower at $76.52 a barrel, after a 0.5% gain the previous day.
U.S. West Texas Intermediate crude gained 1 cent to $71.80 a barrel, after rising 2.9% in post-holiday trade on Wednesday to catch up with Brent crude futures gains earlier in the week.
Both benchmarks were set to gain about 2% for the second straight week. U.S. oil stocks drew more than expected on strong refining demand, while oil prices remain steady after an increase in driving last week, as per the Energy Information Administration, on Thursday. That comes as top oil exporters, Saudi Arabia and Russia announced a fresh round of output cuts for August. The total cuts now stand at more than five million barrels per day (bpd), equating to 5% of global oil output.
Increasing rate cuts
The market has been expecting increasing interest rates in the U.S. and Europe to tame stubborn inflation. Fears of a global recession mounted after recent surveys showing slower factory and services activity in China and Europe.
U.S. interest rate futures on Thursday increased the probability of another U.S. rate rise after news private payrolls surged last month.
“We know the Federal Reserve wants to see the labor market cool off,” said Phil Flynn, an analyst at Price Futures group. “The market is concerned that the Fed has to take the punch bowl away.”
The cuts, along with a bigger than expected drop in U.S. oil stocks, provided some support for prices.
Market viewpoint
Wael Sawan of energy giant Shell told BBC that reducing oil and gas production could be irresponsible and dangerous.
He said the world ‘desperately’ required oil and gas even as it transitioned towards energy, which too wasn’t fast enough to replace the former. He said rising demand from China as well as cold winter in Europe could put the prices of energy and bills higher again.
Top oil exporters are likely to maintain an upbeat view on oil demand growth for next year when it publishes its first outlook for 2024 this month, predicting a slowdown from this year but still an above-average increase, as per sources close to OPEC.
OPEC ministers and executives from oil companies told a two-day conference in Vienna that governments needed to turn their attention from supply to demand.
Rather than pressuring oil producers to curb supply, which serves only to increase prices, governments should shift the focus to limiting oil demand to reduce emissions, said sources close to OPEC.
However, oil prices remain steady on strengthening expectations the U.S. central bank is likely to raise interest rates at their July 25-26 meeting after holding oil prices steady at 5%-5.25% in June.
Supporting prices were data from the Energy Information Administration that showed U.S. crude stocks fell by more than expected last week.
Crude inventories fell by 1.5 million barrels in the last week to 452.2 million barrels, compared with analysts’ expectations for a 1 million barrel drop. U.S. gasoline and distillate inventories also dropped.
