Oil prices fell on Wednesday, taking a break after
gaining for three sessions, as concerns about the global economy weighed while
tight supply curbed losses.
Brent
crude futures for August dropped 98 cents, or 0.8%, to US$117.00 a barrel by
0647 GMT. The August contract will expire on Thursday and the more-active
September contract was at US$113.03, down 77 cents, or 0.7%.
U.S. West Texas Intermediate (WTI) crude futures slid 62
cents, or 0.6%, to US$111.14 a barrel.
Both contracts rose more than 2% on
Tuesday as concerns over tight supplies due to Western sanctions on Russia
outweighed fears of that demand may slow in a potential future recession.
“The
market is stuck in the push-pull between the current deteriorating macro
backdrop and the looming threat of a recession, pitted against the strongest
fundamental oil market set-up in decades, maybe ever,” RBC Capital’s Mike Tran
said in a note.
Saudi
Arabia and the United Arab Emirates have been seen as the only two members of
the Organization of the Petroleum Exporting Countries (OPEC) with spare capacity to make up for lost Russian
supply.
However,
comments from UAE Energy Minister Suhail al-Mazrouei and French President
Emmanuel Macron this week indicated little room for these producers to increase
output further.
“Investors made position adjustments,
but remained bullish on expectations that Saudi Arabia and the United Arab
Emirates would not be able to raise output significantly to meet recovering
demand, driven by a pick-up in jet fuels,” said Hiroyuki Kikukawa, general
manager of research at Nissan Securities.
“Oil
prices will likely stay above US$110 a barrel, also on worries of potential
supply disruptions due to hurricanes as the United States enters the summer,”
he said.
Analysts
also warned that political unrest in Ecuador and Libya could tighten supply
further.
“Our
balances point to crude stock draws in July and August; given how tight the
market is currently, we expect prices to creep up from current levels over the
next four to six weeks,” energy consultancy FGE said in a note.
More changes to Russian oil trade may
come after the G7 economic powers agreed on Tuesday to explore ways to cap the
price of Russian oil, allowing more supplies into the market while curbing
Moscow’s revenue.
However,
traders and analysts are sceptical about how it would work and noted such an
agreement would require cooperation from China and India.
“A
price cap may have a limited effect unless it is adopted by all countries,
globally,” FGE said.
In
the United States, crude inventories are forecast to have fallen for the last
two weeks, according to a Reuters poll.
The
U.S. government’s weekly petroleum status report last week was delayed due to a
hardware issue. The data for both weeks will published together on Wednesday.
Data
from American Petroleum Institute showed gasoline and distillates stocks rose
while crude inventories fell for the week ending 24 June, according to market
sources citing API figures on Tuesday.
Source: Reuters