Oil prices crept lower in Asian trade on Tuesday as initial optimism over more supply cuts by Saudi Arabia and the OPEC was largely offset by persistent concerns over slowing economic growth and weakening demand.
While crude markets initially marked a strong rally in response to more production cuts by Saudi Arabia on Monday, they pared a bulk of their gains by the end of the session as weak U.S. economic data ramped up concerns over a recession this year.
Saudi Arabia pledged to cut production by an additional 1 million barrels per day (bpd) in July, adding to a total of 3.66 million in supply cuts by the OPEC since October. But markets questioned whether lower production targets for other OPEC+ members- particularly Russia, Angola and Nigeria, would have a tangible impact, given that they bring the targets in line with actual output levels.
Markets also bet that any slowdown in demand will largely outweigh tighter supplies this year.
Brent oil futures fell 0.5% to $76.17 a barrel, while West Texas Intermediate crude futures fell 0.8% to $71.58 a barrel by 21:30 ET (01:30 GMT). Both contracts rose as much as 3% on Monday before settling up between 0.6% and 0.8%.
Data on Monday showed that U.S. service sector activity barely grew in May, as strong growth seen over the past few months now appeared to be running out of steam. The data put more headwinds to the U.S. economy- chiefly rising interest rates and high inflation- in stark focus, ahead of a Federal Reserve meeting next week.
Markets are split over whether the central bank will hike or hold interest rates, given somewhat mixed signals on the move in recent weeks. While inflation and labor market data surprised to the upside, several Fed officials have called on the bank to hold rates and watch for more effects of its year-long rate hike spree, given that several facets of the U.S. economy have cooled in recent months.
Focus this week is also on economic readings from major crude importer China, amid growing concerns that a post-COVID rebound in the country is running out of steam.
Inflation and trade data from China is on tap this week, with the latter expected to provide more cues on the country’s appetite for commodities amid weak manufacturing activity.
Still, data this week showed that China’s services sector grew more than expected in May, indicating some resilience in the economy after the lifting of anti-COVID measures earlier this year.Â