05.07.202311:30 Forex Analysis & Reviews: Oil has no strong driving factors

Oil prices traded mixed on Wednesday due to a lack of strong driving factors. WTI quotes are rising on rumors of supply cuts by Saudi Arabia and Russia in August. At the same time, this speculation is no longer driving Brent quotes.

At some point, WTI futures rose by 1.53% to $70.86 per barrel and Brent futures fell by 0.55% to $75.81 per barrel.

Yesterday, it became known that Saudi Arabia considers additional production cuts of 1 million barrels per day. This reduction is expected to last until the end of August.

In addition to Saudi Arabia, Russia and Algeria also plan to voluntarily reduce their oil production volumes. Russia and Algeria will decrease their daily oil production by 500,000 barrels and 20,000 barrels in August.

When all these plans are implemented, the production cut by OPEC+ could reach 5.36 million barrels per day or even more. In addition, for various reasons, some countries are already producing significantly less than the quotas assigned to them by the cartel.

Furthermore, reports about new contracts for purchasing oil from US reserves have also contributed to higher oil prices.

However, all these positive factors have only a short-term impact on prices and do not change the overall trend. The oil market is still facing strong pressure from demand. It remains unclear what crude demand will be amid a global economic downturn. A recession that everyone is talking about now is becoming the most likely scenario in the United States and the European Union, primarily due to the ongoing cycle of interest rate hikes.

Therefore, the expected supply cuts may well be offset by potentially weaker demand, which could ultimately support oil prices. For this reason, despite production cuts in Saudi Arabia and Russia, it is unlikely that oil prices will surpass the $90 mark. There is a high probability that prices will consolidate in the range of $65 to $70 per barrel.

Manufacturing business activity in the United States noticeably declined in June. In the first month of summer, industrial capacities reached a low, unseen since May 2020 (i.e. during the first wave of the COVID-19 pandemic). A similar situation occurred in China, where manufacturing business activity showed poor performance in June, failing to meet expectations after the lifting of quarantine restrictions. Therefore, the world's largest oil consumers (accounting for about one-third of global fuel demand) are clearly experiencing a fall in economic activity.