The European Central Bank (ECB) prepares for further rate hikes. Oil prices slumped on Tuesday over concerns about the European Central Bank’s rate hikes, while investors await data that could shed light on US fuel consumption during the busiest summer driving season.
Brent crude futures fell 43 cents, or 0.6%, to $73.75 a barrel as of 1503 GMT. West Texas Intermediate (WTI) futures fell 41 cents, or 0.6%, to $68.96. Both benchmarks had previously withdrawn more than $1.
Both contracts are generally trading in the $10 range, which has been tracked since the beginning of May. Prices are essentially at the mercy of “constantly changing expectations of interest rates”.
Persistent high inflation will require the bank to refrain from ending interest rate hikes, European Central Bank President Christine Lagarde said on Tuesday. Higher interest rates are putting pressure on economic activity and oil demand.
Despite concerns about the slowing economy in Europe, they are going to put the pedal to the metal with interest rates and that puts pressure on the downside.
European stocks are also down.
US inventory data from the American Petroleum Institute (API) industry group is expected to be released at 4:30 pm by local time. EIA government data will be released on Wednesday. A survey showed that US oil stocks fell during the week of June 23.
The market points to the contango market, where contracts that are loaded earlier are traded over contracts that are loaded later. This indicates waning concerns about the supply squeeze.
For the two-month spread, the market is in a shallow contango with the opposite price structure. This indicates that traders are factoring in a slightly oversupplied market.
Meanwhile, the market didn’t care about the revolt in Russia that was halted by the mercenary group Wagner over the weekend, and Russian oil shipments remained serious. The recent geopolitical flare-up is quickly trivial compared to persistent macroeconomic considerations.
This is the case despite Saudi Arabia’s commitment to reduce production from July.
Much depends on whether China’s oil demand will pick up in the second half, as Chinese Premier Li Qiang said China would take steps to stimulate markets but did not provide details.
