Oil Prices Slip Ahead of Chinese and US Data Despite OPEC+ Cuts to Limit Losses

Vienna, Austria: Oil prices in Asian trade on Monday saw a dip as investors exercised caution before the release of fresh economic data from the top consumers, China, and the United States. Brent crude futures fell 17 cents, or 0.2%, to $76.08 a barrel, while U.S. West Texas Intermediate (WTI) crude futures slipped 15 cents, or 0.2%, to $74.06 a barrel. The dip in oil prices was attributed to concerns about global economic slowdown and possible further interest rate hikes from the U.S. Federal Reserve. Despite the dip, the Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, have agreed to continue capping output.

China's factory gate prices experienced a sharp decline in June 2023, marking the fastest pace in over seven years. This could indicate a slowdown in the Chinese economy and may impact global trade and commodity prices. The drop in factory-gate prices is primarily due to weak demand and rising supply, which led to a further decline in producer price index (PPI) for the ninth consecutive month. The PPI fell to 5.4% from a year earlier in June, marking the steepest decline since December 2015. On the other hand, consumer inflation was flat in June, indicating that retail demand remained weak.

Saudi Arabia and Russia, the world's largest oil exporters, have implemented deeper oil cuts to curb the market instability caused by falling oil prices. This move has been made to support prices despite worries over the global economic recovery. The two countries announced on Monday that they would extend oil supply cuts to the world to stabilize prices. These steps have led to prices rising for the second consecutive week, with benchmarks gaining more than 4% last week, reaching their highest levels since May. Saudi Arabia pledged an additional voluntary oil output reduction of 1 million bpd for the month of July, which could be extended, while Russia has already committed to reducing its output by 500,000 barrels per day (bpd) until the year-end. These actions by the two largest oil producers in the world are expected to support income from the fossil fuel and reduce the ongoing uncertainty in the global oil market.

Oil prices dipped in Asian trading on Monday, as caution prevailed among investors ahead of upcoming economic data and despite OPEC+ production cuts. However, OPEC+ cuts have been limiting the downside. The objective of OPEC and its allies is to reduce crude production in order to reach pre-pandemic levels. More recently, on April 2, 2023, OPEC+ members agreed to cut oil production by 1.2 million b/d until the end of 2023, which is in addition to the voluntary cuts that were already in place. Saudi Arabia has announced its intention to cut oil production by an additional one million barrels per day, as part of a complex effort by OPEC Plus to adjust production and stop the recent decline in oil prices.