Gulf markets subdued as oil fails to rally after cuts

Reuters/Leonhard Foeger

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Oil prices were little changed on Thursday as fears of a global economic slowdown overshadowed tighter crude supply following extended output cuts announced by top exporters Saudi Arabia and Russia earlier this week.

The total cuts now stand at more than 5 million barrels per day (bpd), equating to 5 percent of worldwide oil output.

Brent crude futures edged 4 cents lower to $76.62 a barrel by 12:15 GMT after a 0.5 percent gain the previous day.

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US West Texas Intermediate crude strengthened by 4 cents to $71.83 after rising by 2.9 percent on Wednesday.

Global markets have been rattled further by a warning from the US Federal Reserve of more interest rate rises after last month’s pause.

Most stock markets in the Gulf states, whose currencies are pegged to the US dollar, closed lower on Thursday.

In Abu Dhabi, the index eased by 0.2 percent. The Qatari index ended 0.3 percent lower.

Saudi Arabia’s benchmark index, the TASI, reversed early losses to finish 0.1 percent higher after dropping 0.3 percent in early trading.

Dubai’s main share index, the DFM, was a rare bright spot, advancing 1 percent.

Despite the current headwinds, some industry experts expect oil prices to strengthen.

James Reeve, chief economist at Jadwa, told AGBI he expected the market to tighten during the rest of 2023 and prices to rise.

“I think prices are being held back by excessive gloom about the global economy and the impact that this will have on demand,” he said.

“There has been a lot of focus on China’s underwhelming post-Covid recovery, but China is not the only game in town.

“India’s appetite for crude oil is very strong and growing, while industrial activity in Malaysia, Indonesia, Philippines and Vietnam is also pretty healthy.

“Japan too is on an upswing. And the chances of a US recession are not exactly hard and fast.”

Reeve also noted that, on the supply side, the rig count in the US shale space continues to contract. He said this suggested that US output growth will at least soften, if not go into reverse soon.

Saudi’s voluntary oil output cut extension of one million bpd into August can be extended further, noted a report from the state-run Saudi Press Agency published on Monday.

“Saudi Arabia has clearly signalled that it aims to support prices by withholding output if it sees demand flagging,” Reeve said.

“I see no reason why this policy would suddenly be jettisoned.

“So, if the US were to slip into recession, for example, then the kingdom might make additional cuts.”

Opec is expected to publish its first demand forecast for 2024 in its monthly report on July 13.

Three sources close to Opec told Reuters that while demand growth was likely to slow down, it would not be as severe as the IEA predicted and growth will likely be between 1 million bpd and 2 million bpd.

“On balance, I would expect Brent to average around $80 per barrel next year, a little less than the $82 per barrel we expect in 2023,” Reeve said.