Despite output reductions, oil prices decline

July 7, 2023

Oil prices dipped slightly, wiping out momentary gains brought on by Saudi Arabia’s announcement that it would extend its voluntary output cuts by one more month. 

While European stocks ended mostly lower, Asian stock markets rose as easing inflation data fueled hopes that central banks may be nearing the end of their cycle of raising interest rates. On the eve of the American holiday of Independence Day, investor sentiment was muted as Wall Street stocks edged up to end a shortened trading session.       

Several OPEC+ members decided to cut production voluntarily by more than one million bpd in April. This unexpected action unexpectedly raised prices for a short time but did not result in a sustained price recovery. According to City Index analyst Fawad Razaqzada, this is primarily because Russia is producing and selling more oil than originally agreed, and “traders clearly want to see evidence that Russia will be complying,” as evidenced by the somewhat muted response on the oil market. 

Since the beginning of 2023, both Brent and WTI have decreased as concerns about a potential economic downturn and China’s slow recovery have clouded the outlook. 

The cuts “should help to break the speculative shorts,” said Paul Horsnell, head of commodities research at Standard Chartered Plc. With current positioning extremely short, “a significant portion of it might be expected to bow out in the face of these producer moves.”

Source: The Manila Times

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