This Monday saw what was perhaps one of the shortest oil price rallies following an OPEC+ meeting.
The announcement of an additional production cut of around 800,000 bpd by the oil-producing group pushed Brent crude and West Texas Intermediate slightly higher during the day but by Tuesday morning the momentum had fizzled out and both key benchmarks were down.
At the time of writing, Brent crude was trading at $76.52 per barrel, with West Texas Intermediate at $71.93 per barrel, both down, although by less than half a percentage point from yesterday. During the Monday session, Brent crude added some $2.60 per barrel and WTI jumped by over $3 per barrel.
It appears that traders are unconvinced about the importance of any further cuts from OPEC+ as worry about the state of the global economy prevails. On Sunday, Saudi Arabia announced that it would implement voluntary cuts of 1 million bpd but the UAE was allowed to raise its output by about 200,000 bpd.
“Supply side issues took centre stage following OPEC’s production cuts. However, the gains were limited amid ongoing concerns over the economic backdrop,” analysts from ANZ said in a note cited by Reuters earlier today.
On the other hand, “the U.S. economy is about to show a very robust summer travel season that should mean gasoline and jet fuel demand is going to be very strong,” according to Edward Moya from OANDA, also cited by Reuters.
According to U.S. manufacturing sector data, the industry has been shrinking for seven months in a row, which fits in with the definition of a recession, which has dampened demand for fuels and reinforced a bearish sentiment among oil traders.
On the other hand, summer driving season is peak demand season and with prices at the pump much lower than they were this time last year, it could live up to its name, possibly changing traders’ sentiment.