July 01, 2023 (MLN): Oil prices have surged over 4% in the month of June, effectively halting a seven-month period of predominantly declining trajectory.

The opening price for the month of June for Brent crude and WTI was $72.02 and $67.58 respectively.

Both benchmarks concluded the month with an increase of 4.20% MoM and 4.21% MoM respectively. However, prices fell more than 12% Year to Date (YTD).

Meanwhile, oil prices are down significantly by 37.48% from their high in June 2022.

Brent crude daily time-frame chart

Brent crude weekly time-frame chart

WTI daily time-frame chart

WTI weekly time-frame chart

First week

In the first week of June, Brent crude and WTI climbed by 6.47% and 7.22% respectively.

The gains were associated with the passage of a crucial debt ceiling bill and Saudi Arabia’s decision to cut its oil output by 1 million barrels from July.

Consequently, both benchmarks rose by 3.06% and 3.78% respectively in the first trading session of the month.

However, China experienced weaker-than-expected economic data, creating uncertainty in demand as the country’s manufacturing operations contracted faster than anticipated in May.

Therefore, fluctuations in oil prices prevailed due to global economic concerns.

In addition, U.S. crude oil and gasoline inventories rose by 5.2m and 2.4m barrels respectively as per API figures. The distillates inventories also rose by 4.5m barrels.

During the week, prices were supported by the market sentiments of a possible interest rate pause by the FED on its June 14 meeting.

Second week

Both benchmarks fell significantly by 4.42% and 5.03% respectively in the second week of June as global economic concerns outweighed Saudi Arabia’s output reduction.

In response to weak economic data, China's central bank lowered the short-term lending rate for the first time in 10 months on June 13, as a result, oil prices climbed over 3% on the day.

However, the market weighed on rising global supplies and concerns about demand growth, forcing prices to plunge. Moreover, U.S. fuel stocks rose and China witnessed weak export data.

The U.S. consumer price index (CPI) for May 2023 clocked at 4% YoY, which was below analysts’ expectations of 4.1% in May, indicating a moderation of inflationary pressures.

On top of that the U.S. Federal Reserve paused the interest rate at 5-5.25% at its meeting on June 14, however, it projected potential interest rate hikes this year that influenced the oil prices to fall by 1.5% on the day as concerns regarding demand grew.

Third week

In the third week, the oil prices appreciated by 4.5% amid growing Chinese demand outweighed the weakness in the global economy and the prospect of further interest rate hikes.

The oil market drew support from strong China refinery data and U.S. reports showing retail sales unexpectedly rose in May.

On top of that the declining DXY made crude cheaper for holders of other currencies, and increased demand.

Furthermore, China’s central bank lowered the short-term lending rate along with its two benchmark lending rates, the one-year loan prime rate (LPR) and the five-year LPR by 10 basis points.

As the rate cuts were widely expected, hence it did not offer a bullish push to the oil markets.

The European Central Bank (ECB) increased its benchmark refinancing rate by 25 bps to 3.75%-4% on June 15.

During the week, the number of working oil and natural gas rigs was reduced by U.S. energy firms, restricting output.

In addition, the consumer price inflation in the UK held steady at 8.7% in May, although market participants had expectations that it would slow.

Fourth week

Oil prices witnessed a decline of more than 2% in the fourth week amid a higher-than-expected interest rate hike in Britain along with Federal Reserve chair Jerome Powell's statement that policymakers expect interest rates to move higher.

The Bank of England rose its interest rates to 5%, a 50 bps hike that was larger than projected. As a result, oil prices dipped by 4% on June 22.

Meanwhile, the market’s concern over further interest rate hikes resulted in oil prices slumping over 2% on June 27.

The declining trend for the week reversed when oil prices climbed about 3% on June 28, amid larger-than-expected crude inventories dropping by 9.6m barrels in the week ended June 23, extending gains over the last two trading sessions.

The closing prices for both benchmarks were $75.05 and $70.42 respectively.

Way forward

During the outgoing month, the oil prices faced pressure due to inflation and rising interest rates in addition to a slower-than-expected recovery in Chinese manufacturing and consumption.

Thereby, signs of strengthening U.S. economic activity with sharp declines in U.S. oil inventories last week offered support.

Additionally, Saudi Arabia’s decision to cut oil output by 1m barrels per day starting in July and OPEC+ deal to restrict supply in 2024 will continue to impact oil prices positively.

It is worth noting that this month's 4% gain comes after oil prices experienced a consistent downward trend over the past seven months, with only a single month (April) showing a meager gain of 0.4%.

Copyright Mettis Link News 

Posted on: 2023-07-01T23:30:53+05:00