Oil prices experienced a period of stability on Tuesday, following a volatile session, as market participants considered the impact of additional supply cuts by Saudi Arabia and Russia in light of worsening global economic conditions.
Saudi Arabia announced an extension of its recently implemented 1 million barrels per day (bpd) production cuts through August and possibly beyond. Likewise, Russia stated its intention to reduce oil exports by 500,000 bpd.
Despite the optimistic outlook resulting from these supply cuts, concerns about weak manufacturing activity readings from the United States, Germany, and China on Monday outweighed the positive sentiment. These readings fueled apprehensions that the global economy may deteriorate further, consequently affecting crude demand.
Brent oil futures experienced a 0.2% decline, settling at $74.86 per barrel, while West Texas Intermediate crude futures saw a 0.4% increase, reaching $70.05 per barrel by 21:28 ET (01:28 GMT). Both contracts concluded Monday’s session with minimal gains, following a volatile trading period.
OPEC Meeting in Focus
The decision by Saudi Arabia and Russia to implement supply cuts aligns with an upcoming conference hosted by the Organization of Petroleum Exporting Countries (OPEC) and its allies this week. Notably, chief executives from major global oil companies will convene with energy ministers from OPEC member states on Wednesday and Thursday, potentially offering additional insights for oil markets.
OPEC has implemented two oil production cuts this year in an attempt to stabilize prices. However, these cuts have had limited impact on oil prices, as concerns regarding a global economic slowdown have overshadowed any indications of tightening supply.
Observers will closely monitor the OPEC conference for further indications of production cuts. Nevertheless, as it is an informal gathering, the likelihood of significant changes to production levels remains low.
Awaiting Federal Reserve Indicators after Disappointing Manufacturing Data
This week, attention will also turn to the United States and any signals regarding monetary policy, beginning with the release of the minutes from the Federal Reserve’s June meeting on Wednesday. While the central bank maintained interest rates at their previous level last month, it hinted at the possibility of two additional rate hikes later in the year.
The anticipation of rising interest rates has weighed heavily on oil prices this year, as markets fear that tighter monetary conditions will generate headwinds for demand.
On Monday, considerably weaker-than-expected manufacturing data from the world’s largest economies exacerbated these concerns, exerting downward pressure on crude markets.
Additionally, the market will focus on the nonfarm payrolls data for June, which is expected to factor into the Federal Reserve’s interest rate plans.
