Adedapo Adesanya
By Adedapo Adesanya
Oil prices eased on Monday on the increasing likelihood of more US interest rate hikes, but crude supply cuts from top oil exporters Saudi Arabia and Russia limited the losses.
Brent crude slowed by 78 cents or 1 per cent to $77.69 a barrel, and the US West Texas Intermediate (WTI) crude moderated by 87 cents or 1.2 per cent to $72.99 per barrel.
The week started down after both benchmarks rose more than 4.5 per cent last week after Saudi Arabia and Russia announced fresh output cuts, bringing total reductions by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to around 5 million barrels per day or about 5 per cent of global oil demand.
The likelihood that the US will further hike rates came after San Francisco Federal Reserve President Mary Daly on Monday repeated that she believes two more rate hikes this year will likely be needed to bring down inflation that is still too high.
Also, Cleveland Fed President Loretta Mester, who is not a voting member of the rate-setting Federal Open Market Committee this year, signalled more rate rises.
“The economy has shown more underlying strength than anticipated earlier this year, and inflation has remained stubbornly high, with progress on core inflation stalling,” she said.
“In order to ensure that inflation is on a sustainable and timely path back to 2%, my view is that the funds’ rate will need to move up somewhat further from its current level and then hold there for a while as we accumulate more information on how the economy is evolving,” she added.
Higher interest rates could slow economic growth and reduce oil demand.
Also pressuring prices, the US Labor Department reported last Friday the smallest monthly job gain in more than two years, along with strong wage growth.
209,000 payroll jobs were added in June amid a continued climb in the pace of hiring from the highs seen in the months when the economy was still reopening from the pandemic.
However, it remains above the 183,000 average jobs added per month in the decade before the health crisis, and the steady pace of average hourly earnings gains stuck around 4.4 per cent on an annual basis since April.
The data strengthened the likelihood that the US central bank would raise interest rates at its meeting later this month.
However, oil demand from China and developing countries, combined with OPEC+ supply cuts, is likely to keep the market tight in the second half of the year despite a sluggish global economy, Mr Fatih Birol, the International Energy Agency (IEA) head, said.
“Even in sluggish economic growth, demand is strong for China and other developing countries.
“Taken together with the production cuts coming from key producing countries, we still believe that we may see tightness in the market in the second half of this year,” he told Reuters.
The release of US Consumer Price Index data, a key inflation report, and other economic reports from China later this week will decide the market’s direction.
