On Thursday, investors pulled profits on concerns that more interest rate hikes will slow economic growth and global fuel demand. Weak Chinese economic data also weighed on sentiment.
By 0647 GMT, Brent crude futures fell 26 cents, or 0.4%, to $73.77. WTI crude futures fell 22 cents to $69.34 a barrel.
After the U.S. Energy Information Administration (EIA) reported a 9.6-million-barrel draw in crude stockpiles in the week ending June 23, both benchmarks rose around 3%.
“The market turned around on renewed worries about further rate hikes in the U.S. and Europe, which will reduce global oil demand,” said Hiroyuki Kikukawa, president of NS Trading, a Nissan Securities company.
On Wednesday, the world’s leading central banks reiterated their belief that additional policy tightening is needed to contain stubbornly high prices without causing recessions.
While European Central Bank President Christine Lagarde confirmed a ninth consecutive eurozone rate hike in July, U.S. Federal Reserve Chair Jerome Powell did not rule out further hikes at the central bank’s next meeting.
The world’s second-largest oil consumer, China saw industrial business profits fall by double-digits in the first five months due to softening demand.
“The lack of prospects for fuel demand growth has limited the gain in oil prices, even with supply curbs by oil producers,” said Tetsu Emori, CEO of Emori Fund Management Inc.
“The impact of the spread of electric vehicles and improvements in energy efficiency in many industries to tackle climate change may be beginning to affect the underlying demand structure itself,” he said.
Saudi Arabia vowed to substantially decrease its output in July when prices fell, on top of an OPEC+ accord to cap supplies until 2024. For the first time since July 2020, U.S. energy companies decreased oil and natural gas rigs for eight weeks.
Brent’s six-month backwardation, when sooner-loading contracts trade at higher prices than later-loading ones, reached its lowest since December but suggested increased demand for immediate delivery.
“Behind the backwardation is the expectation that the immediate demand for fuels will stay firm as the United States has entered the driving season, but the global economy will slow down toward the second half of this year, reducing oil demand,” said NS Trading’s Kikukawa.
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