Oil Down as Analytical Focus Shifts to Fed Meeting

Meanwhile, the Saudi output cuts are viewed as a trading disappointment: File Image/Pixabay

Crude prices on Friday resumed their downward trajectory and contributed to a second straight weekly decline, as traders were said to be swayed yet again by earlier U.S. inventory builds, weak export data from China, and the overarching cloud of economic malaise.

Giovanni Staunovo, an analyst at UBS, said, "Long investors are likely on the sidelines until larger oil inventory declines become visible."

Brent settled down $1.17, or 1.5 percent, to $74.79 per barrel, and West Texas Intermediate settled down $1.12, or 1.6 percent, to $70.17 per barrel; for the week, Brent fell 1.6 percent and WTI dropped 2 percent.

Arguably the biggest disappointment for the week was Saudi Arabia's vow to lower output to 9 million barrels per day (bpd), which lifted prices far less robustly than expected and was then forgotten as the notion of Iran's return to the world oil market stage triggered a substantial price drop.

Craig Erlam, analyst at Oanda, remarked, "The important thing is that despite those changes [Saudi, US-Iran] to output, oil remains below $80, no doubt much to the disappointment of the Saudis.

"What comes next may well depend on the inflation data and interest rate decisions over the coming weeks."

Erlam was referring to the U.S. Federal Reserve possibly pausing interest rate increases at its next meeting on June 13-14, a prospect frazzled analysts also hope might boost prices.

Meanwhile, Rob Haworth, senior investment strategist at U.S. Bank Asset Management, said of the nascent summer driving season, "Demand will be a key factor in determining whether limited inventories must drive prices higher, or soft demand leads to lower prices."

Friday's trading was almost entirely absent of bullish sentiment, except for news of money managers propelling their bets on Brent crude to a six-week high in the week ending June 6th.

Instead, Jeff Currie, head of commodities research at Goldman Sachs Group Inc., summarized the current state of affairs by remarking, "We have been continuously selling for about six months to nine months."

This coincides with Energy Information Administration earlier stating that oil prices will not average more than $80 per barrel in the second half of this year, despite the Saudis' output cut announcement.

The EIA contributed further to the gloom by observing that "If GDP growth does decline, we could see a further slowdown in U.S. diesel consumption."