Market uncertainty impacts oil prices with recent declines

The US indices are trending upward

By Laila Eid | @Laila Eid | 3 July 2023

Market close
  • The dollar index and gold remain stable ahead of the US Federal Reserve meeting

  • WTI Crude Oil experienced a decline of over 2% last week

  • Gold showed positive performance last week, increasing by 0.65%

Oil prices slide as concerns mount over global demand and supply

Oil prices fell for the third consecutive day as West Texas crude dropped below $70 a barrel, while Brent approached the $72 per barrel threshold. These declines were driven by concerns over global oil demand, particularly in light of current data and the tightening monetary policies pursued by major banks worldwide. Uncertainty also surrounds the Chinese economy's recovery, following the release of last week's economic data, which revealed a 7.5% contraction in Chinese exports on an annual basis, amounting to $283.5 billion in May. This represents a decrease from the previous reading of 8.5% in April.

Goldman Sachs has revised its forecast for oil prices downward, citing increasing supplies and declining demand. The bank now suggests that Brent crude may reach $86 per barrel, a decrease from the previous forecast of $95 per barrel.

Meanwhile, West Texas crude is currently trading near $68 a barrel, registering its most significant weekly decline since early May 2023. Year to date, it has already fallen by over 15%. Last week, OPEC+ announced an extension of production cuts until the end of 2024; however, this news failed to bolster oil prices due to concerns over a potential slowdown in the US economy and uncertainties surrounding the recovery of the Chinese economy following the easing of COVID-19 restrictions. Furthermore, geopolitical factors and imposed sanctions continue to significantly impact oil supplies.

US stock futures rise ahead of key economic data and federal reserve meeting

US stock futures experienced positive movements at the beginning of the week as markets geared up for a busy period of significant economic data. The anticipation of a potential pause in the Federal Reserve's interest rate hikes, following ten consecutive increases, bolstered contracts for the Nasdaq index. Of note, Tuesday will see the release of the US consumer price index (CPI) reading, with expectations suggesting a decrease in inflation from 4.9% to 4.1%.

This week, the US Federal Reserve is scheduled to hold a meeting, and opinions vary regarding the central bank's next course of action. On Wednesday, the options include either a 25-basis point interest rate hike or maintaining the current rate of 5.25% for the first time since the beginning of 2022, which would be the highest level since 2007.