Oil prices drop from ten-week high on macroeconomic concerns
Oil prices slipped in Asian trade early on Monday, retreating from Friday’s ten-week high amid profit-taking and continued concerns about the world’s two biggest economies, the U.S. and China.
As of early trade in Europe, WTI Crude traded at $73.15, down by 0.96% on the day. The international benchmark, Brent Crude, was down by 0.96% at $77.72.
Both benchmarks settled over 2% higher on Friday, to the highest levels in ten weeks.
Early on Monday, however, macroeconomic concerns again trumped the ongoing OPEC+ efforts to tighten the physical market.
The Chinese post-Covid recovery may have further slowed as evidenced by the steepest drop in the producer price index (PPI) in June since the end of December 2015.
Chinese factory gate prices slumped by 5.4% in June compared to the same month in 2022, data from the National Bureau of Statistics showed early on Monday. The drop in producer prices was steeper than analyst estimates and the annual decline in May. At the same time, China’s consumer inflation was flat on an annual basis in June, suggesting that the authorities could consider further monetary stimulus to revive demand.
The OPEC+ cuts and the U.S. Administration’s announcement on Friday that it plans to purchase around 6 million barrels of oil for the Strategic Petroleum Reserve (SPR), with delivery scheduled for October and November, limited the oil price declines.
So far, the Biden Administration has bought 6.3 million barrels at an average price of $72.67 per barrel, compared to around $95 per barrel that SPR crude was sold for in 2022.
“Cuts from both Saudi Arabia and Russia have provided some support, although the market will have to continue to contend with macro uncertainty, which has capped the market over the last couple of months,” ING strategists Warren Patterson and Ewa Manthey said on Monday.
“The recent action taken by Saudi Arabia will likely provide some comfort to longs as it sends the signal that the Saudis are committed to putting a floor under the market.”
According to IG strategist Jun Rong Yeap, “Hopes for some recovery in the second half of this year may be pinned on expectations for China to bring in more stimulus in the months ahead while US economic conditions retain some resilience.”
The oil market will be closely watching this week the U.S. Consumer Price Index (CPI) report for June due out on Wednesday and OPEC and IEA’s monthly reports on Thursday.
