On Tuesday, oil prices took a U-turn from their earlier gains and dipped, primarily due to concerns about potential interest rate hikes by the Federal Reserve and a slowdown in economic growth. These factors overshadowed the positive sentiment surrounding the increase in the U.S. debt ceiling.
Traders remained on edge as they awaited further economic indicators from China, a major oil importer. The upcoming release of manufacturing and service sector data for May, scheduled for Wednesday, kept market participants anxious.
At 23:41 ET (03:41 GMT), Brent oil futures slipped by 0.6% to reach $76.62 per barrel, while West Texas Intermediate crude futures declined by 0.4% to settle at $72.39 per barrel. Initially, both contracts had experienced a modest increase of up to 0.9%.
Following a volatile session on Monday, crude markets managed to close slightly higher, largely driven by the diminishing likelihood of a U.S. debt default after lawmakers signaled a tentative agreement to raise the spending limit. However, concerns persisted over a potentially more hawkish Federal Reserve, particularly after the release of higher-than-anticipated inflation data late last week. Furthermore, the strength of the dollar acted as a limiting factor, preventing substantial gains in the crude market.
Currently, market participants eagerly await new indicators to guide their actions, with a particular focus on additional economic signals from China scheduled for later this week. Business activity data for May is anticipated to reveal whether the economic rebound in the country has further decelerated following a series of weak readings in April.
The diminishing expectations of a strong economic recovery in China have led oil traders to question whether the world’s largest oil importer will drive global crude demand to reach record highs this year. Chinese oil imports experienced a decline throughout April, further contributing to this skepticism.
In the upcoming week, fresh information regarding supply will emerge from a meeting of the Organization of Petroleum Exporting Countries (OPEC), as the market awaits their decision on potential production cuts. Mixed signals from Saudi Arabia and Russia regarding further output reductions have added to the uncertainty. Notably, in April, the cartel and its allies unexpectedly reduced oil production, providing a short-lived boost to prices.
Moreover, market focus extends to a series of economic indicators from the United States. Of particular importance is the nonfarm payrolls data for May, scheduled to be released on Friday. Any signs of resilience in the labor market would strengthen the Fed’s inclination to raise interest rates, which could potentially exert downward pressure on oil markets.
Despite recent gains, oil prices continue to trade over 5% lower for the year, as persistent concerns about deteriorating economic conditions weigh on demand prospects.
