Oil Drops Again As Bearish Fixation Overlooks Strong U.S. News

Meanwhile, Julian Lee wants Russia to come clean with OPEC: File Image/Pixabay.

Oil on Wednesday ended the month in what has become the standard bearish fashion, albeit somewhat less severe than the previous session's drop of over 4 percent.

Pressured by a strong U.S. dollar and disappointing economic data from China, Brent settled down $1.11 to $72.60 per barrel, while West Texas Intermediate settled down $1.37, or 2 percent, to $68.09.

Chinese data showed manufacturing activity contracted faster than expected in May; however, this was somewhat offset by U.S. data showing an unexpected rise in job openings in April – a sure sign of persistent strength in the labour market.

However, pundits complained that this could compel the Federal Reserve to raise interest rates when it meets to discuss the issue in June.

Bob Yawger, director of energy futures at Mizuho, said, "We have weaker-than-expected Chinese data, the debt limit situation, two years of flat spending, and likely another rate hike next month weighing on markets."

Rebecca Babin, a senior energy trader at CIBC Private Wealth, added, "Sentiment remains extremely bearish and positioning reflects limited risk appetite in the commodity into the weekend with the OPEC+ meeting."

Babin was referring to the Organization of the Petroleum Exporting Countries' latest meeting in Vienna on June 4, in which it is expected that members will opt to keep output unchanged  - although that is the view of analysts who the cartel has frequently proven wrong in the past.

Meanwhile, Julian Lee, a commodities analyst for Bloomberg, on Wednesday said Russia "needs to show OPEC partners that it's slashing oil output as promised or risk sparking a dustup like it did in 2020; neither side wants another free-for-all."

Lee reasoned that three months into the country's pledged 500,000 barrel per day cut, "there's very little sign that its impact is being felt where it matters: beyond Russia's borders — assuming production has really been slashed.

"For as long as possible, Moscow will continue to pretend it has reduced supply and its OPEC+ partners will pretend to believe it."