Oil Prices Fall on Fresh Energy Demand Worries

By Adedapo Adesanya

Oil prices fell on Tuesday on new worries that sluggish global economic growth could reduce energy demand.

Brent futures fell by 42 cents or 0.6 per cent to settle at $76.29 a barrel, while the US West Texas Intermediate (WTI) crude futures declined by 41 cents or 0.6 per cent to settle at $71.74 per barrel.

Prices had risen on Monday after Saudi Arabia said over the weekend it would cut output to around 9 million barrels per day in July from about 10 million barrels per day in May.

Saudi Arabia, the world’s top oil exporter, also unexpectedly increased the official selling price of its crude to Asian buyers.

However, the Saudi supply cut is unlikely to achieve a sustainable price increase into the high $80s and low $90s due to weaker demand and stronger supply from producers that do not belong to the Organisation of the Petroleum Exporting Countries (OPEC).

Pressure also came from slower economic growth in China and potential recessions in the US and Europe.

The market also faced a soaring US dollar which rose to its highest level against a basket of currencies since hitting a 10-week high on May 31.

This happened as investors waited on fresh signals on whether the US Federal Reserve will raise or hold interest rates at its June 13-14 meeting.

A stronger greenback can weigh on oil demand by making the fuel more expensive for holders of other currencies.

In the US, the services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low, which could aid the Federal Reserve’s fight against inflation.

The Institute for Supply Management (ISM) said its non-manufacturing PMI fell to 50.3 last month from 51.9 in April. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the world’s largest economy.

The World Bank, however, raised its 2023 global growth outlook as the US, China, and other major economies have proven more resilient than forecast but warned of higher interest rates and tighter credit.

Higher interest rates boost borrowing costs, which can slow the economy and reduce oil demand.

The market will await more data from the US and China that could provide fresh demand indications in the world’s two biggest oil consumers.

China, the second-biggest oil consumer, will release its May trade data on Wednesday.