Traders are preparing themselves for a potential reduction in oil supply, causing crude oil prices to remain stable as we enter the second half of the year. The focal point is Saudi Arabia, which plans to decrease its oil production by 1 million barrels per day this month. The question remains whether this reduction will extend beyond July, although market expectations lean towards a supportive effect on prices due to the cuts in July.
Bloomberg reports that there is speculation of an extension of the production cut into August, a possibility that would provide additional buoyancy to prices. However, concerns about demand act as a limiting factor on prices. Recent news regarding the U.S. consumer spending report revealed that Americans are tightening their budgets due to uncomfortably high inflation, intensifying worries about demand.
Reuters, in a report, noted that this reinforces expectations of more interest rate hikes by the Federal Reserve, which would subsequently suppress the demand for oil. National Australia Bank expressed concern over the demand outlook in light of the hawkish commentary on rates.
However, the demand outlook could shift if the U.S. government continues to purchase oil for the strategic petroleum reserve. A Saxo Bank analyst suggested that ongoing oil purchases by the U.S. government may have a positive impact on the demand outlook. According to Charu Chanana, an analyst at Saxo Bank, oil prices could remain reliant on demand concerns as we enter the third quarter. Nonetheless, the supply cut enforced by OPEC is expected to provide support and may potentially be extended into August.
Moreover, Chanana mentioned that the refilling of the U.S. strategic petroleum reserve is likely to gain momentum and contribute to a supported demand outlook.
Bloomberg reports that Brent crude has experienced quarterly losses for the past four quarters, marking the longest losing streak for this international benchmark in over two decades. Oil prices have declined by approximately 12% since the beginning of the year, following the significant surge experienced last year in response to Russia’s invasion of Ukraine.
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