Market Pressure
In the face of weak export data from China, rising U.S. inventory builds, and the overarching economic malaise, crude prices have resumed a downward spiral, contributing to a second consecutive weekly decline. UBS analyst, Giovanni Staunovo, noted that long investors are likely to stay on the sidelines until larger oil inventory reductions materialize. Consequently, Brent dropped by 1.5% to $74.79 per barrel, while West Texas Intermediate (WTI) fell by 1.6% to $70.17 per barrel. Cumulatively, Brent’s value reduced by 1.6%, while WTI took a 2% hit for the week.
Disappointing News
Despite Saudi Arabia’s vow to curtail output to 9 million barrels per day — which temporarily boosted prices — the reemergence of Iran in the world oil market scene soon led to prices plummeting again. Analyst Craig Erlam from Oanda observed that oil prices remaining below $80 is probably causing disappointment for the Saudis. He added that upcoming inflation data and interest rate decisions might dictate the future trajectory of oil prices.
Uncertain Future
There is anticipation surrounding the U.S. Federal Reserve’s potential decision to pause interest rate increases at its next meeting on June 13-14, which analysts believe could possibly enhance oil prices. Rob Haworth, a senior investment strategist at U.S. Bank Asset Management, emphasized that demand is a key factor in deciding whether limited inventories lead to higher prices or soft demand results in lower valuations.
Bullish Sentiment Lacking
Although money managers propelled their bets on Brent crude to a six-week high in the week ending June 6th, Friday’s trading reflected an almost complete lack of bullish sentiment. Jeff Currie, head of commodities research at Goldman Sachs Group Inc., summarized the plight aptly by stating that continuous selling persists for about six to nine months. This aligns with the Energy Information Administration’s (EIA) claim that oil prices are unlikely to average over $80 per barrel in the second half of this year, despite the announced Saudi output cut. Adding to the downtrend, the EIA noted that if GDP growth declines, U.S. diesel consumption could experience a further slowdown.
