Tuesday saw a little decline in oil prices as traders gave up the majority of the gains made the previous session in the wake of Saudi Arabia’s declaration that it will further reduce the output, of the world’s largest exporter. At $76.48 a barrel, Brent crude futures were down 23 cents, or 0.3%. American West Texas Intermediate crude dropped 25 cents, or 0.4%, to $71.90 a barrel. After Saudi Arabia announced that its output would decrease by 1 million barrels per day (bpd) to 9 million bpd in July, the price of Brent oil increased by as much as $2.6 on Monday and the price of U.S. crude rose by as much as $3.3 in the following hours.
The voluntary cut, the largest by Saudi Arabia in recent years, comes on top of a larger agreement by the Organisation of the Petroleum Exporting Countries (OPEC) and allies, including Russia, to reduce supplies until 2024 as OPEC+ works to revive falling oil prices. About 40% of the world’s crude is produced by OPEC and its allies. The organization cut the targets for Russia, Nigeria, and Angola to bring them in line with actual current production levels, so many of the reductions announced after the OPEC summit in Vienna on Sunday may not actually have an impact.
The U.S. Federal Reserve’s decision to raise or keep interest rates in June will provide market participants with further trading cues. Cost increases might reduce energy usage. Data released on Monday that revealed the U.S. services sector barely expanded in May as new orders slowed fueled expectations that the Fed will hold off on raising interest rates.
The CME FedWatch Tool showed that traders assigned a 78% probability to the Fed delaying its interest rate increases during its meeting on June 13–14. Christine Lagarde, president of the European Central Bank, acknowledged “signs of moderation” in the euro zone’s core inflation on Monday but reaffirmed it was too early to declare a peak in that important price growth indicator, raising hopes for additional interest rate increases from the ECB this month and the following.
