Oil Prices Drop as Optimism over More Supply Cut Eases

Oil prices dipped slightly in early Asian trade on Tuesday, as optimism for more supply curbs by Saudi Arabia and OPEC were mostly countered by persistent concerns over struggling economic growth and demand.

By 10:06 AM Bangkok Time, Brent oil futures fell to $76.53 per barrel, while West Texas Intermediate crude futures dropped to $71.91 per barrel. On Monday, both contracts had increases of up to 3%, and ended with gains of 0.6% to 0.8%. 

After OPEC committed to reduce supplies by 3.66 million bpd back in October, Saudi Arabia vowed on Sunday to reduce production by an additional 1 million bpd in July. Since the new targets are more in line with actual output levels, the markets questioned if the reduced targets for other OPEC+ members, particularly Russia, Angola, and Nigeria, will have a tangible impact.

Although crude markets showed an initial strong rebound on Monday in response to increased production restrictions by Saudi Arabia, both contracts gave up most of their gains by the end of the session after poor U.S. economic data cranked up concerns over a recession this year.

Monday’s data suggested that the U.S. services sector barely expanded in May, as new orders slowed. This pushed a measure of prices paid by businesses for inputs to a three-year low, which might benefit the Federal Reserve in battling against inflation.

Bets on the Fed not raising interest rates at its June 13-14 meeting have been buoyed by a slew of economic statistics and last week’s dovish language from Fed members.

According to the CME FedWatch tool, the odds of the Fed keeping rates unchanged have risen sharply in the past week, from 36% to 77%.