Oil prices drop as global economic concerns outweigh supply cuts

July 05, 2023 (MLN): Oil prices declined on Wednesday, reversing earlier gains attributed to supply cuts for August imposed by Saudi Arabia and Russia, as concerns over global economic downturn weighed on market.

Brent crude is currently trading at $75.68 per barrel, down by 0.56% on the day.

While West Texas Intermediate crude (WTI) is trading at $70.91 per barrel, down by 0.53% on the day.

Oil prices are under pressure amid worries over global economic slowdown and further hikes in the U.S. and Europe.

"The market will likely continue to move back and forth for some time, focusing on economic indicators in China and monetary policy by central banks," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting, as Reuters reported.

A private-sector survey on Wednesday showed China's services activity expanded at the slowest pace in five months in June, as weakening demand weighed on post-pandemic recovery momentum.

Moreover, global factory activity slumped in June as weak demand in China and Europe created uncertainty for exporters.

Saudi Arabia said it would extend its voluntary oil output cut of 1 million barrels per day (bpd) for another month to include August, adding that the cut could be extended beyond that month, as Reuters reported.

In addition, Russia, the world's second-largest oil exporter after Saudi Arabia, has already pledged to reduce its output by 500,000 barrels per day (bpd) to 9.5m bpd from March until year-end.

The cuts amount to 1.5% of global supply and bring the total pledged by OPEC+ oil producers to 5.16m bpd as Riyadh and Moscow look to prop up prices.

However, market participants remained concerned over the demand for the commodity.

Traders will be looking for demand cues from industry data on U.S. crude and product inventories from the American Petroleum Institute later on Wednesday and government data on Thursday, both delayed by a day due to the U.S. holiday.

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