Oil prices fell on Monday as cautiousness over US debt ceiling talks and concerns about demand recovery in China were offset by Canadian wildfires and low supply support from OPEC+ producers.
Brent crude futures fell 73 cents, or 0.97%, at 0634 GMT to $74.85 a barrel, while West Texas Intermediate (WTI) crude for July delivery, the more actively traded contract, slipped 73 cents, or 1.02%, to $70.96.
The June WTI contract, which expires on Monday, fell 87 cents to $70.68 a barrel.
Abundant volatility and an upward bounce in crude oil prices are expected in the coming days relating to an agreement being reached to raise the debt ceiling. However, different economic headwinds will limit the headroom of crude oil.
Weak economic data from China in recent weeks has sparked demand concerns in the world’s largest crude oil importer and #2 oil consumer, analysts said.
Last week, both oil benchmarks posted their first weekly gains in five weeks, up nearly 2%, after wildfires in Alberta, Canada, halted massive supplies of crude oil.
The impact of voluntary production cuts by the allies, known as OPEC+, is also being felt after it goes into effect this month. According to analysts, it is stated that the group’s total exports of crude oil and petroleum products fell by 1.7 million barrels per day until May 16, and it is mentioned that Russia’s oil exports will probably decrease by the end of May.
On Saturday, the Group of Seven (G7) countries pledged at their annual leaders’ meeting to step up efforts against Russia’s escape from oil and fuel export price ceilings.
International Energy Agency (IEA) Executive Director Fatih Birol stated that such increases are not expected to change the supply situation for crude oil and petroleum products, adding that the agency is sticking to its analysis for now.
In its latest monthly report, the IEA warned of an impending crop contraction in the second half, when demand is expected to dwarf supply by around 2 million barrels per day.
Since the Russians are very effective at finding ways to circumvent European and US sanctions, and sanctions are difficult to enforce, it remains to be seen in practice whether the new restrictions will affect Russia’s oil production.
Baker Hughes Co said the U.S. oil rig count fell 11 to 575 in the week through May 19, the biggest weekly drop since September 2021.
The slowdown in US drilling activities is a serious concern for the oil market, which is expected to run a large deficit in the second half of this year.