Crude Gives Up Gains, Market Waiting For Demand Improvements

Oil has given up almost all its gains after Saudi Arabia announced it would cut 1mbd of output. WTI finished only 0.2% higher and is now around $71.88. It reached a high of $75.06 following the announcement but trended down throughout Monday and took another step down after disappointing US services ISM/PMI data. Recession fears are never too far from the surface. The USD index was flat on the day.

• Many believe that the further output reduction will put a floor under prices rather than drive a rally, as the market waits to see signs that demand is improving. The Saudis want to see prices stabilise. The IEA’s Birol said that this latest move will add further pressure on a market which the IEA expects to be in deficit in H2 2023. The Saudis also increased all official prices for July delivery.
• WTI remains well above support at $70/bbl, the June 2 low. Brent was 0.8% on Monday and is at $76.71 after an intraday high of $78.73 straight after the open. Support lies at $74.18, the June 2 low.
• US shale producers will stick to their plans to gradually increase output over 2023, despite Saudi output reductions.