By Scott DiSavino
NEW YORK (RockedBuzz via Reuters) – Oil prices fell about 1% on Tuesday as fears that slow global economic growth could reduce energy demand outweighed Saudi Arabia’s pledge to tighten output cuts.
Brent futures fell 42 cents, or 0.6%, to $76.29 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 41 cents, or 0.6%, to at $71.74.
Prices rose on Monday after Saudi Arabia said over the weekend it would cut production to around 9 million barrels per day (bpd) in July from around 10 million barrels a day in May.
Saudi Arabia, the world’s top oil exporter, also unexpectedly raised the official selling price of its crude to Asian buyers.
However, the Saudi supply cut is unlikely to lead to “sustainable price increases” in the high $80s and low $90s due to weaker demand, stronger non-OPEC supply, slower economic growth in China and potential recessions in the United States and Europe, Citi analysts say in a note.
The US dollar soared to its highest level against a basket of currencies since hitting a 10-week high on May 31 as investors awaited fresh signs that the US Federal Reserve will raise or hold interest rates in June .
A stronger dollar can weigh on oil demand by making fuel more expensive for holders of other currencies.
One such sign came from the US services sector, which barely grew in May due to the slowdown in new orders.
“Crude prices are heavy as global growth concerns continue to suggest a much weaker demand outlook for crude oil,” said Edward Moya, a senior market analyst at data and analytics firm OANDA.
Mood was further dented by data showing German industrial orders unexpectedly fell in April.
The World Bank, however, raised its global growth outlook for 2023 as the US, China and other major economies proved more resilient than expected, but said higher interest rates and stronger credit tight will have a greater impact on next year’s results.
Higher interest rates increase borrowing costs, which can slow down the economy and reduce oil demand.
The market is awaiting data from the United States and China that could provide new indications on demand in the world’s two largest oil consumers.
China, the second largest oil consumer, is to release its May trade data on Wednesday.
The Energy Information Administration (EIA) has forecast that US crude oil production will increase from 11.9 million barrels per day in 2022 to 12.6 million barrels per day in 2023 and 12.8 million barrels per day in 2024 , up from a record 12.3 million barrels per day in 2019.
The EIA also forecast that US oil demand will rise from 20.3 million bpd in 2022 to 20.4 million bpd in 2023 and 20.7 million bpd in 2024. This compares with a record 20.8 million barrels per day in 2005, according to EIA data dating back to 1973.
The market is also awaiting US oil inventories data from the American Petroleum Institute (API), an industry group, at 4:30 PM EDT on Tuesday and the EIA at 10:30 AM EDT on Wednesday.
Analysts expect U.S. energy companies added about 1.0 million barrels of crude in storage during the week ending June 2, according to a RockedBuzz via Reuters poll. [EIA/S] [API/S]
It would be the second consecutive weekly increase in crude inventories and compares with an increase of 2.0 million barrels in the same week last year and a five-year average increase (2018-2022) of 2.3 million barrels.
(Reporting by Scott DiSavino in New YorkAdditional reporting by Rowena Edwards in London, Arathy Somasekhar in Houston and Trixie Yap in SingaporeEditing by David Goodman, Matthew Lewis, Chizu Nomiyama and Richard Chang)