- Saudi Arabia said it might increase oil production.
- Economists expect a fall in oil prices due to the ongoing trade wars and OPEC+ output hikes.
- US data showed that the economy contracted by 0.3% in the first quarter.
Oil prices continued falling on Thursday after ending the worst month in over three years. The recent decline came as market participants worried about oversupply as OPEC+ unwinds its output cuts. At the same time, Trump’s tariffs and the subsequent trade wars have dimmed the outlook for oil demand.
Oil collapsed on Wednesday after Saudi Arabia said it did not need to continue supporting oil prices with output cuts. Therefore, it could increase production. For weeks, several countries have voiced their support for another output hike in June. The OPEC+ had initially just announced a hike in May. However, another in June will loosen the market and weigh on prices.
WTI monthly change (Source: NYMEX)
A Reuters poll on Wednesday revealed that economists expect a fall in oil prices due to the ongoing trade wars and OPEC+ output hikes. The trade war between China and the US has continued, increasing the likelihood of a global recession. As a result, experts have downgraded forecasts for oil demand.
Fortunately, the trade tensions between the two countries have begun to ease. Trump noted that there was an increasing likelihood of a trade deal with China. Moreover, he might soon sign deals with South Korea, India, and Japan. A de-escalation in the global trade war will ease pressure on oil prices.
Meanwhile, data on Wednesday revealed a sharp drop in crude inventories, capping oil’s decline. Stocks rose by 2.7 million barrels. Meanwhile, economists had forecasted a 429,000 barrel increase.
Elsewhere, US data showed that the economy contracted by 0.3% in the first quarter. Estimates had shown a 0.2% expansion. A weaker economy translates to poor demand for oil. The decline came as imports soared before Trump’s tariffs. Businesses were rushing to import goods at previous prices before Trump imposed levies on most countries.
Another report showed weak private employment in April as companies tried to cut costs. Employers hired 62,000 workers, compared to forecasts of 114,000 new jobs. However, market participants are awaiting the non-farm payrolls report. This will paint a clearer picture of the labor market.
Finally, the core PCE report showed inflation was unchanged. Economists had expected a 0.1% increase. Following these reports, market participants were pricing 100-bps of Fed rate cuts this year, with a higher likelihood of a move in June.
