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Oil prices end lower, erasing gains seen after Saudi plan for production cut

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[]Oil futures ended lower on Tuesday, with worries over the global economic outlook leading prices to give back gains seen in the wake of Saudi Arabiaโ€™s plan to further cut its production in July.

Price action

  • West Texas Intermediate crude for July delivery CL00, -0.98% CL.1, -0.98% CLN23, -0.98% fell 41 cents, or 0.6%, to settle at $71.74 a barrel on the New York Mercantile Exchange, with prices giving back their 0.6% Monday gain.
  • August Brent crude BRN00, -0.42% BRNQ23, -0.42%, the global benchmark, fell by 42 cents, or nearly 0.6%, to $76.29 a barrel on ICE Futures Europe. Prices for the contract had gained about 0.8% on Monday.
  • Back on Nymex, July gasoline RBN23, +0.65% added 1.6% to $2.56 a gallon, while July heating oil HON23, -0.93% lost 0.4% at $2.37 a gallon.
  • Juy natural gas NGN23, +0.62% tacked on 0.8% to $2.26 per million British thermal units.

Market drivers

[]Crude prices surged at the open Sunday evening after Saudi Arabia announced it would voluntarily cut production by an additional 1 million barrels a day in July, with the potential to extend the cut. The announcement came as the OPEC+ โ€” the Organization of the Petroleum Exporting Countries and its Russia-led allies โ€” concluded a meeting that saw the group extend existing production cuts through the end of 2024.

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[]The oil market needs some assurance that the other OPEC+ members wonโ€™t be taking advantage of Saudi Arabia and will be complying fully with previously agreed production cuts, said Fawad Razaqzada, market analyst at StoneX, a emailed commentary Tuesday. โ€œRussia could be the main culprit, as Moscow needs to sell as much oil as it can to finance its ongoing war in Ukraine.โ€

[]Oil futures came under renewed pressure Tuesday, with analysts citing concerns about global demand and U.S. oil futures giving back what they gained a day earlier.

[]โ€œSaudi Arabia is attempting to keep the oil price up for reasons of domestic stability, but it faces two major problems,โ€ said Matt Gertken, chief strategist, geopolitical strategy and U.S. political strategy at BCA Research.

[]Read:ย Saudi Arabiaโ€™s planned oil cut could lead to โ€˜cracksโ€™ within OPEC+ โ€” but not a spike in gasoline prices

[]The first is โ€œglobal oil demand is proving weaker than expected because of Chinaโ€™s structural problems and the developed worldโ€™s tight monetary policy,โ€ and the second is that global oil supply faces โ€œunexpected disruptions stemming from Russiaโ€™s and Iranโ€™s geopolitical conflicts with the West,โ€ he told MarketWatch.

[]The result is oil volatility that โ€œcould include major oil price shocks but will ultimately conclude in lower prices as a result of recession,โ€ said Gertken.

[]Ultimately, โ€œoil prices are likely to weaken due to disappointments in both global and Chinese growth, stemming from Chinaโ€™s debt-deflation and globally tight monetary policy,โ€ he said.

[]In a monthly report issued Tuesday, the Energy Information Administration raised its WTI and Brent oil-price forecasts for this year and next.

[]It also forecasts U.S. production at record highs in 2023 and 2024, and said it expects global supplies top tighten following the OPEC+ decision to extend their production cuts through 2024.

[]Read: EIA predicts record-high 2023 and 2024 U.S. oil output

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