Oil prices sink after Saudi-driven rally

"Oil prices are under pressure...  as the glow from Saudi's supply cut fades and the reality of the sluggish demand backdrop sets in," an expert noted.
Image used for representational purpose only. (Photo | AP)
Image used for representational purpose only. (Photo | AP)

LONDON: Oil prices sank Tuesday as dealers mulled the weak demand outlook after having rallied the previous day on output cuts from key crude producer Saudi Arabia.

Europe's Brent oil contract and US counterpart WTI crude fell more than two percent, one day after bouncing on news that Riyadh slashed daily output by one million barrels for July in a bid to prop up prices.

The announcement came at a weekend meeting of the 23-nation OPEC+ oil producers' alliance, which also agreed to continue its current production cuts until the end of next year.

Saudi glow fades

"Oil prices are under pressure...  as the glow from Saudi's supply cut fades and the reality of the sluggish demand backdrop sets in," noted Victoria Scholar, head of investment at trading firm Interactive Investor.

Asian and European stock markets mostly fell as investors also digested a surprise interest rate increase from the Reserve Bank of Australia (RBA).

That sparked talk that global central banks were not yet done hiking to combat stubbornly-high inflation.

The RBA lifted its main rate by 25 basis points to 4.1 percent, which was the highest level since May 2012.

In reaction the Australian dollar jumped more than one percent against the greenback, which traded mixed against the euro and yen.

"The RBA's surprise decision...(was) a warning that the major central banks are not done tightening yet," SwissQuote analyst Ipek Ozkardeskaya told AFP.

"That, combined to the overbought conditions in stock markets, weighs on sentiment.

"We will likely step into a period of profit taking after such a breathtaking and unexpected rally."

The tepid equities performance came after a global advance stumbled Monday, with a below-par read on US services sector activity hinting at weakness in a key area of the economy.

"After a brief rally since the end of last week, markets have taken a moment to catch their breath," noted AJ Bell investment director Russ Mould.

Traders have been broadly upbeat after a "Goldilocks" jobs report Friday that was neither too good nor too bad suggested the economy was not facing an immediate risk of a recession and could still give the Federal Reserve room to hold monetary policy next week.

There is a growing hope that the central bank will decide against a hike but flag a resumption in July as officials try to bring inflation down while limiting damage to the economy and the troubled banking sector.

Bitcoin held steady Tuesday at $25,785, one day after sliding after US regulators charged cryptocurrency giant Binance with securities law violations.

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The New Indian Express