Oil Price Declines As Economic Concerns Overwhelm Supply Shortages

Oil prices dipped on Monday as worries about fuel consumption in the main two oil users in the world, the United States and China, outweighed optimistic mood over tighter supply from OPEC+ cutbacks and a resumed U.S. purchasing for reserves.

By 0638 GMT, Brent oil futures had decreased by 26 cents, or 0.35%, to reach $73.91 per barrel, while U.S. West Texas Intermediate crude had down by 20 cents, or 0.29%, to reach $69.34 per barrel.

The United States might enter a recession on "significant risk" of a historic default within the first two weeks of June, according to worries that both benchmarks fell last week for a fourth straight week, the longest run of weekly drops since September 2022.

The U.S. dollar gained strength as a result of investors looking for safe havens, increasing the cost of commodities denominated in other currencies for holders of other currencies.

"Oil prices are still under pressure on sluggish demand outlooks as China's economic reopening progress seems bumpy," CMC Markets analyst Tina Teng said, adding that the U.S. banking rout has also caused market jitters.

Investors will be looking for indications of an increase in oil demand in the next week as they comb through China's avalanche of economic data on industrial output, fixed asset investment, and retail sales, she added.

"With the uneven re-opening in China and concerns that the U.S is facing a growth slowdown at a time when the X-date for the debt ceiling is rapidly approaching, topped off by a rally in the U.S dollar, market sentiment towards crude oil will remain tepid at best," IG analyst Tony Sycamore said.

Nevertheless, as OPEC+, the Organisation of the Petroleum Exporting Countries and its allies, including Russia, continue to cut output, sour crude supply may become more scarce globally in the second half.

According to estimates by Reuters, the group indicated in April that certain members will reduce output by an additional 1.16 million barrels per day, bringing the total volume of cutbacks to 3.66 million bpd.

However, according to Iraq's oil minister, Hayan Abdel-Ghani, the group's next meeting in June is not expected to result in further limits to oil production.

After completing a sale required by Congress in June, the United States may begin repurchasing oil for the Strategic Petroleum Reserve (SPR), Energy Secretary Jennifer Granholm informed legislators on Thursday.

Following this news, energy services company Baker Hughes Co (BKR.O) released its weekly report, which revealed that the number of U.S. oil rigs decreased by two this week to 586, its lowest level since June 2022, while the number of gas rigs fell by 16 to 141.

According to officials with direct knowledge of the deliberations, the leaders of the Group of Seven (G7) nations may unveil fresh measures at their meetings from May 19 to 21 that target third-country sanctions evasion.

According to the sources, the sanctions' tightening would also aim to impede Russia's future energy output and reduce commerce that benefits its armed forces.

Since the European Union embargo began in December, India and China, the world's No. 3 and No. 1 crude importers, have been the main consumers of Russian oil.