Oil prices get small lift from output cuts; equities wobble

03 Jul 2023 10:15pm
Image for illustrative purposes only. - FILE PIX
Image for illustrative purposes only. - FILE PIX

LONDON, UK - Oil prices rose on Monday after key producers Saudi Arabia and Russia further cut crude output in a bid to protect their precious revenues, but quickly gave up most of their gains.

Asian stock markets meanwhile advanced as easing inflation data fuelled hopes central banks could be nearing the end of their interest rate hiking cycle.

But both European and US equities were mixed, with investor sentiment was subdued on Wall Street on the eve of the Independence Day holiday in the United States.

Brent crude, the international benchmark, and US counterpart WTI jumped after Riyadh extended a voluntary oil production cut of one million barrels per day, while Moscow -- whose invasion of Ukraine last year sparked oil market turmoil -- said it was slashing exports by 500,000 bpd.

Much of the gains evaporated as traders continued to digest the news from the two biggest members of the OPEC+ producers' alliance.

"It's the usual knee-jerk reaction to reports of production cuts," IG analyst Chris Beauchamp told AFP.

"But given... it's not a coordinated move from all (OPEC+) members it seems hard to imagine there's much more upside in this." He also warned that "the outlook for oil demand remains firmly under pressure" with many analysts forecasting recession next year.

Recent efforts by OPEC+ to bolster prices by reducing output have not succeeded.

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In April, several OPEC+ members opted to slash production voluntarily by more than one million bpd -- a surprise move that briefly raised prices but failed to bring about lasting price recovery.

City Index analyst Fawad Razaqzada said this was primarily due to Russia producing and selling more oil than agreed and "judging by the somewhat muted response" on the oil market "traders clearly want to see evidence that Russia will be complying".

Brent is down around 11 percent since the beginning of 2023 and WTI is down seven percent, as a sluggish recovery in China and worries about a possible economic downturn cloud the outlook.

"Recession concern in the Western world continue to weigh on the oil market sentiment," added UBS analyst Giovanni Staunovo.

"We continue to expect the oil market to tighten, and this should lift oil prices." "But financial investors will likely stay cautious in the short term." Stock markets had jumped Friday as data showed inflation cooling in both the United States and Europe, while Apple ended a session above $3 trillion in market value for the first time.

The personal consumption expenditures (PCE) index - the US inflation measure closely watched by the Federal Reserve - dropped in May to 3.8 per cent year-on-year from 4.3 per cent in April.

In Europe, figures showed eurozone consumer prices rose 5.5 percent in June, slowing from 6.1 percent in May thanks to a drop in energy costs.

The Federal Reserve and the European Central Bank have warned that more interest rate hikes are likely, though the latest data raised hopes they could soon wind down their monetary tightening.

"Inflation is proving to be more stubborn than many had thought. Now, monetary policy must prove more persistent and consistent than many would have expected," German central bank chief Joachim Nagel warned on Monday. - AFP

- Key figures around 1330 GMT -

Brent North Sea crude: UP 0.3 percent at $75.65 per barrel

West Texas Intermediate: UP 0.3 percent at $70.85 per barrel

New York - Dow: DOWN 0.3 percent at 34,319.91 points

London - FTSE 100: DOWN less than 0.1 percent at 7,527.14

Paris - CAC 40: DOWN less than 0.1 percent at 7,394.75

Frankfurt - DAX: DOWN 0.3 percent at 16,105.66

EURO STOXX 50: UP 0.1 percent at 4,403.64

Tokyo - Nikkei 225: UP 1.7 percent at 33,753.33 (close)

Hong Kong - Hang Seng Index: UP 2.1 percent at 19,306.59 (close)

Shanghai - Composite: UP 1.3 percent at 3,243.97 (close)

Euro/dollar: UP at $1.0914 from $1.0909 on Friday

Pound/dollar: DOWN at $1.2695 from $1.2703

Dollar/yen: UP at 144.44 yen from 144.31 yen

Euro/pound: UP at 85.98 pence from 85.88 pence