SINGAPORE – Oil prices declined in early Asian trade on Monday as investors approached with caution ahead of upcoming economic data from the United States and China. However, the market received support from expected crude supply cuts by Saudi Arabia and Russia.
Brent crude futures fell by 0.3 percent to $78.25 a barrel, while U.S. West Texas Intermediate crude was down by 0.4 percent at $73.57 a barrel.
According to CMC Markets analyst Tina Teng, oil traders may be cautious due to the upcoming U.S. Consumer Price Index (CPI) report and China’s economic data this week. She also mentioned that crude prices could rebound after the Organization of the Petroleum Exporting Countries (OPEC) and its allies (collectively known as OPEC+) announced plans to further reduce supply.
Last week, both Brent crude and U.S. West Texas Intermediate crude saw gains of more than 4 percent, reaching their highest levels since May. These gains were driven by Saudi Arabia and Russia’s commitment to deepening supply cuts in August.
Saudi Arabia will extend its 1 million barrels per day (bpd) output cut into August, while Russia will reduce crude exports by 500,000 bpd. Additionally, Russia plans to use the extra crude to meet domestic fuel demand instead of cutting output, according to a government source.
The cuts by Saudi Arabia have already started to ease its oil glut, as floating storage off the Egyptian Red Sea port of Ain Sukhna has decreased by nearly half since mid-June, according to data from oil analytics firm Vortexa.
JPMorgan analysts noted that non-OPEC+ supply has been keeping up with global demand, and they recommend that OPEC+ deepen its cuts by an additional 700,000 bpd in the second half of the year. They also suggest extending the cuts into 2024.
Concerns about shipping in the Gulf were raised after Iran seized a supertanker managed by U.S. major Chevron last week. The incident highlights the threat to shipping in the region, including the Strait of Hormuz.
In the U.S., Friday’s data showed strong wage growth and a slight decrease in the unemployment rate, further supporting expectations of an interest rate hike by the Federal Reserve at the upcoming July meeting.
According to the U.S. Commodity Futures Trading Commission (CFTC), money managers increased their net long U.S. crude futures and options positions in the week leading up to July 3.
IG analyst Tony Sycamore stated that if WTI prices sustain above $75, it could lead to a test of the top of its eight-month range between $64 and $84.
Last week, U.S. oil rigs decreased by five to 540, the lowest level since April 2022, according to a report by Baker Hughes.
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