Oil slips as recession fears overshadow supply cuts

London — Oil benchmark Brent edged lower on Wednesday as concern over a global economic slowdown overshadowed supply cuts announced this week by top crude exporters Saudi Arabia and Russia.

Brent crude was down 18c, or 0.24%, at $76.07 a barrel by 10.03am GMT, having risen by $1.60 on Tuesday.

US West Texas Intermediate crude traded at $70.23, up $1.44, or 2.06%, from Monday's close.

Given that there was no settlement on Tuesday because of the US public holiday, trade on Wednesday appeared to narrow the spread between the benchmarks, with WTI catching up with Brent’s gains the previous day.

“These measures are designed to push oil prices higher, but currently they are being pulled down by macroeconomic anxiety,” PVM analyst Tamas Varga said of the price impact from the supply cuts.

“Some would argue that the latest decision to supply less oil to the market is actually bearish because it can be viewed as an admission that demand is struggling to grow at a healthy clip due to global economic headwinds.”

Recent surveys have shown a slump in global factory activity, reflecting sluggish demand in China and Europe.

China’s services activity in June expanded at the slowest pace in five months while eurozone business activity slipped into contractionary territory in June in a broad-based downturn across the bloc’s dominant services sector.

Saudi Arabia, the world's biggest crude exporter, on Monday said it would extend its voluntary output cut of 1-million barrels per day (bpd) to August. Russia and Algeria, meanwhile, are lowering their August output and export levels by 500,000 bpd and 20,000 bpd respectively.

On Wednesday, Morgan Stanley lowered its oil price forecasts, predicting a market surplus in the first half of 2024 with non-Opec supply growing faster than demand next year.

Market attention is also focused on interest rates, with US and European central banks expected to increase rates further to address stubbornly high inflation.

Reuters