Oil futures ended lower on Tuesday, with worries over the global economic outlook leading prices to give back gains seen in the wake of Saudi Arabia’s plan to further cut its production in July.
Price action
-
West Texas Intermediate crude for July delivery
CL00,
-0.21% CL.1,
-0.21% CLN23,
-0.21%
fell 41 cents, or 0.6%, to settle at $71.74 a barrel on the New York Mercantile Exchange, with prices giving back their 0.6% Monday gain. -
August Brent crude
BRN00,
-0.22% BRNQ23,
-0.22% ,
the global benchmark, fell by 42 cents, or nearly 0.6%, to $76.29 a barrel on ICE Futures Europe. Prices for the contract had gained about 0.8% on Monday. -
Back on Nymex, July gasoline
RBN23,
+0.51%
added 1.6% to $2.56 a gallon, while July heating oil
HON23,
+0.07%
lost 0.4% at $2.37 a gallon. -
Juy natural gas
NGN23,
-0.52%
tacked on 0.8% to $2.26 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.
The oil market needs some assurance that the other OPEC+ members won’t be taking advantage of Saudi Arabia and will be complying fully with previously agreed production cuts, said Fawad Razaqzada, market analyst at StoneX, a emailed commentary Tuesday. “Russia could be the main culprit, as Moscow needs to sell as much oil as it can to finance its ongoing war in Ukraine.”
Oil futures came under renewed pressure Tuesday, with analysts citing concerns about global demand and U.S. oil futures giving back what they gained a day earlier.
“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.
In a monthly report issued Tuesday, the Energy Information Administration raised its WTI and Brent oil-price forecasts for this year and next.
It also forecasts U.S. production at record highs in 2023 and 2024, and said it expects global supplies top tighten following the OPEC+ decision to extend their production cuts through 2024.
Read: EIA predicts record-high 2023 and 2024 U.S. oil output
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