Oil futures fell Tuesday, more than erasing the climb that followed Saudi Arabia’s weekend announcement of a 1 million-barrel-a-day July output cut, as traders fretted over the global economic outlook.
Price action
-
West Texas Intermediate crude for July delivery
CL00,
-0.53% CL.1,
-0.53% CLN23,
-0.53%
fell $1.04, or 1.4%, to $71.11 a barrel on the New York Mercantile Exchange after tacking on 0.6% on Monday. -
August Brent crude
BRN00,
-0.50% BRNQ23,
-0.50% ,
the global benchmark, was down $1.01, or 1.3%, at $75.70 a barrel on ICE Futures Europe. -
Back on Nymex, July gasoline
RBN23,
+1.35%
added 0.4% to $2.534 a gallon, while July heating oil
HON23,
-0.42%
was down 0.9% at $2.357 a gallon. -
Juy natural gas
NGN23,
-0.09%
shed 0.1% to $2.243 per million British thermal units.
Market drivers
Crude prices surged at the open Sunday evening after Saudi Arabia announced it would voluntarily cut production by an additional 1 million barrels a day in July, with the potential to extend the cut. The announcement came as the OPEC+ — the Organization of the Petroleum Exporting Countries and its Russia-led allies — concluded a meeting that saw the group extend existing production cuts through the end of 2024.
Sunday’s gains faded though over the course of trading Monday, leaving crude with a modest gain at the end of the session. Futures came under renewed pressure Tuesday, with analysts citing concerns about global demand.
“Saudi Arabia is attempting to keep the oil price up for reasons of domestic stability, but it faces two major problems,” said Matt Gertken, chief strategist, geopolitical strategy and U.S. political strategy at BCA Research.
Read: Saudi Arabia’s planned oil cut could lead to ‘cracks’ within OPEC+ — but not a spike in gasoline prices
The first is “global oil demand is proving weaker than expected because of China’s structural problems and the developed world’s tight monetary policy,” and the second is that global oil supply faces “unexpected disruptions stemming from Russia’s and Iran’s geopolitical conflicts with the West,” he told MarketWatch.
The result is oil volatility that “could include major oil price shocks but will ultimately conclude in lower prices as a result of recession,” said Gertken.
Ultimately, “oil prices are likely to weaken due to disappointments in both global and Chinese growth, stemming from China’s debt-deflation and globally tight monetary policy,” he said.
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