Oil prices steady as fears over supply tightness counter demand woes

Oil prices steadied on Wednesday after the previous session’s losses, as demand concerns owing to slow global economic growth were offset by fears of tighter global supply following Saudi Arabia’s pledge to deepen output cuts.

Brent crude futures were up 9 cents, or 0.1%, at $76.38 a barrel at 0039 GMT. The U.S. West Texas Intermediate crude futures rose 11 cents, or 0.2%, to $71.85 a barrel.

Both benchmarks eased about 1% on Tuesday, paring some of Monday’s gains that were driven by top crude exporter Saudi Arabia’s surprise pledge over the weekend to reduce output by 1 million barrels per day (bpd) to 9 million bpd in July.

“The market has digested the news of Saudi’s production cut and investors are now reluctant to take a large position because of mixed economic forecasts and indicators in the United States and China,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

“We expect oil prices to test upside as we enter the summer driving season in the United States,” he said, adding that tighter global supply and U.S. plans to buy crude to refill the Strategic Petroleum Reserve will limit the downside.

The voluntary cut, Saudi Arabia’s biggest in years, is on top of a broader deal by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to limit supply into 2024 as the group, collectively known as OPEC+, seeks to boost flagging oil prices.
But Saudi’s deeper output cuts is unlikely to underpin a sustainable price increase into the high $80s-low $90s, Citi said on Tuesday, although UBS analysts forecast Brent at $95 a barrel by end-2023 with a supply deficit seen rising above 2 million bpd. Meanwhile, the U.S. Energy Information Administration (EIA) said on Tuesday that U.S crude oil production this year will rise faster and demand increases will cool compared to prior expectations.

A reduction in the U.S. crude stocks also lent support to the oil market, NS Trading’s Kikukawa said.

U.S. crude oil inventories fell by about 1.7 million barrels last week, while fuel inventories rose, according to market sources citing American Petroleum Institute figures on Tuesday.

Analysts forecast U.S. energy firms added about 1.0 million barrels of crude into storage during the week ended June 2, according to a Reuters poll.