Oil prices edged lower on Tuesday, relinquishing some gains from their highest levels this year, as the market awaited details on production cuts from Russia and OPEC+ countries. Additionally, investors kept a close eye on developments in China, with the focus centered on upcoming data releases.
In the past week, oil experienced a robust rally following Russia’s announcement of an agreement with the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to implement further supply reductions. Specifics regarding this deal are anticipated to be disclosed this week.
Saudi Arabia, the de facto leader of the OPEC+ alliance, is also expected to extend its ongoing reduction of one million barrels per day (bpd) until the end of October. The Kingdom has signaled its commitment to maintaining low production levels to support global crude prices.
As of 21:02 ET (01:02 GMT), Brent oil futures saw a marginal decrease of 0.1%, settling at $88.91 per barrel. Meanwhile, West Texas Intermediate (WTI) crude futures experienced a similar 0.1% dip, reaching $85.89 per barrel. Brent oil was hovering near its highest level since late January, while WTI traded close to levels last observed in November 2022.
Analysts at Oanda noted, “That there is still plenty of momentum so close to $90 a barrel may suggest we could see a strong push to break above which would represent a big shift in the market dynamic in quite a short period of time.”
Supply Tightness Mitigates Economic Uncertainty
The prospect of reduced oil supplies provided support to bullish sentiment, with investors largely overlooking mixed economic data from major oil-consuming countries. Recent indicators from the United States pointed to a slowdown in the nation’s labor market and economic growth. Additionally, concerns emerged regarding U.S. fuel demand as the summer season, characterized by increased travel, drew to a close.
The cooling of economic activity in the United States has raised expectations that the Federal Reserve may have limited room to continue raising interest rates. This development has eased concerns that higher rates could dampen crude demand this year. Nevertheless, the U.S. dollar retained its strength, hovering near three-month highs on Tuesday, in anticipation of a series of speeches by Federal Reserve officials this week. While the central bank is widely expected to maintain rates in September, it is also projected to keep rates at levels not seen in over two decades.
In China, a blend of government and private surveys presented mixed signals on manufacturing activity. As the world’s largest oil consumer, China continues to grapple with the challenges of sustaining its post-COVID economic recovery. Market participants are hopeful that Beijing will introduce additional stimulus measures in the coming weeks to further support economic growth. This week, particular attention is on Chinese trade data, which will provide insights into the resilience of crude demand in the country.
