Oil prices fell on Thursday, paring some of the previous day’s gains, as investors took profits on concerns of further interest rate hikes dampening economic growth and global fuel demand while weak economic data in China also weighed on sentiment.
Brent crude futures declined 26 cents, or 0.4 percent, to $73.77 a barrel by 0647 GMT. U.S. West Texas Intermediate (WTI) crude futures slipped 22 cents, or 0.3 percent, to $69.34 a barrel.
Both benchmarks climbed about 3 percent on Wednesday after the U.S. Energy Information Administration (EIA) said crude inventories dropped by 9.6 million barrels in the week ended June 23, far exceeding the 1.8-million barrel draw analysts had forecast in a Reuters poll.
“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 unit of Nissan Securities.
Leaders of the world’s top central banks reaffirmed on Wednesday they think further policy tightening will be needed to tame stubbornly high inflation but still believe they can achieve that without triggering outright recessions.
The U.S. Federal Reserve Chair Jerome Powell did not rule out further hikes at the central bank’s next meeting, while European Central Bank President Christine Lagarde cemented expectations for a ninth consecutive rise in euro zone rates in July.
Adding to pressure, annual profits at industrial firms in China, the world’s second-biggest oil consumer, extended a double-digit decline in the first five months as softening demand squeezed margins.
“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.
Facing falling prices, Saudi Arabia this month pledged to sharply cut its output in July, on top of a broader OPEC+ deal to limit supply into 2024. U.S. energy firms last week cut the number of oil and natural gas rigs operating for an eighth week in a row for the first time since July 2020.
Brent’s six-month backwardation – a price structure whereby sooner-loading contracts trade at higher prices than later-loading ones – reached its lowest since December, but still indicated higher 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,” NS Trading’s Kikukawa said.