Crude oil prices were little changed at the start of the week—and the second half of the year—as traders brace up for tighter supply. Saudi Arabia will this month reduce its oil output by 1 million barrels daily. It remains to be seen if it will extend the reduction beyond July but expectations are that the July cuts will have a supportive effect on prices.
According to Bloomberg, some expect the cut to be extended through August as well, which would additionally buoy prices.
Demand, however, remains a cause for worry and a cap on prices. The latest news that stoked that worry was the U.S. consumer spending report, which revealed Americans are tightening their belts as inflation remains too high for comfort.
This in turn reinforced expectations of more rate hikes by the Fed, which would dampen demand for oil, Reuters noted in a report.
“Hawkish commentary on rates continues to raise concerns of the demand outlook weighing on prices,” National Australia Bank said in a note quoted in the above report.
On the other hand, the demand outlook might change if the U.S. government continues with its oil purchases for the strategic petroleum reserve, according to a Saxo Bank analyst.
“Going into the third quarter, oil prices could remain dependent on demand concerns, but OPEC’s supply cut will start to underpin and may be extended to August,” Charu Chanana told Bloomberg.
“The US SPR refilling is also likely to pick up traction, and keep demand outlook supported,” the analyst added.
Brent crude booked quarterly losses for the last four quarters, which was the longest losing streak for the international benchmark in over 20 years, according to Bloomberg.
Since the start of the year, oil prices have shed some 12% after skyrocketing last year in the wake of Russia’s invasion of Ukraine.
By Irina Slav for Oilprice.com
