Oil prices are flat in this morning’s trading session, as investors await the latest US inflation data today for signs of how hawkish the Federal Reserve’s future rate-hikes will be.
Brent Crude is trading 0.16 per cent down at $79.27 per barrel, while WTI Crude has eased 0.13 per cent to $74.73 per barrel.
Both major benchmarks have consolidated a nine-week high in prices last Friday, but the upcoming release of consumer price data could lead to even higher interest rates to combat inflation – further slowing economic growth and reducing oil demand .
Markets are already factoring in an expected 25 basis point hike later this month, according to polling from news agency Reuters.
So far this year, gloomy economic data from Western economies and a sluggish post-pandemic revival in oil demand across China has weighed down prices, offsetting aggressive supply cuts from OPEC and its allies including Russia (OPEC+).
However, the International Energy Agency (IEA) still expects markets to tighten in the second half of the year, with an awakening of demand across China and developing economies combining with the near five million barrels per day of supply cuts tabled by OPEC+ members.
This includes Saudi Arabia’s decision to unilaterally extend its one million barrel per day output cut into August, while Russia is further cutting crude exports by 500,000 bpd.
“Even in sluggish economic growth, China and other developing countries’ demand is strong .Taken together with the production cuts coming from key producing countries, we still believe that we may see tightness in the market in the second half of this year,” IEA chief Fatih Birol told Reuters.
In its oil report for June, the Paris-based climate agency argued that countries outside the OECD group of developed nations would make up 90 per cent of demand growth this year.
OPEC is expecting an even stronger economic rebound in China as a potential upside factor for the market in its own monthly report.
Craig Erlam, senior markets analyst at Oanda said: “Brent hit a one-month high on Monday after breaking above the 21 June peak, bringing an end to a series of lower highs that had contributed to the consolidation we’ve seen in recent months.
“While it is still trading around the range highs since early May, the break of the recent high could be viewed as a bullish step that could give it the momentum to break back above $80. It has now run into resistance again around the late-May and early-June highs near $79 but the rally still has momentum at this stage.”