Oil falls as economic fears overshadow Saudi output cuts

LONDON, June 6 (Reuters) – Oil prices fell by more than $1 a barrel on Tuesday, pulling back from a strong rally in the previous session as concerns over global economic growth outweighed Saudi Arabia’s pledge to reinforce output cuts.

Brent crude futures were down $1.30, or 1.69%, at $75.41 a barrel by 1327 GMT. US West Texas Intermediate crude fell $1.39, or 1.93%, to $70.76.

Brent gained as much as $2.60 a barrel on Monday and WTI as much as $3.30 after Saudi Arabia, the world’s top exporter, said at the weekend that production would fall by 1 million barrels per day (bpd) to 9 million barrels per day in July.

But weaker demand, stronger non-OPEC supply, slower economic growth in China and potential recessions in the US and Europe mean the Saudi cut is unlikely to achieve a “sustainable price increase” into the high $80s and low $90s, Citi analysts said in a note on Tuesday.

Backwarding in Brent crude futures – where the current value is higher than in recent months – steepened after the weekend’s announcement, with the six-month spread hitting a five-week high of $2.20 a barrel on Monday.

It fell to around $2.06 a barrel on Tuesday.

“The market remains focused on demand risks, with recessionary concerns mounted on a broad-based miss in US services PMI, leaving room for a Fed pause on interest rates,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The US services sector barely grew in May as new orders slowed and market participants waited to see whether the US Federal Reserve will raise or hold interest rates in June.

Higher interest rates can dampen energy demand.

Sentiment was further dampened by data showing that German industrial orders fell unexpectedly in April.

“If upcoming economic data suggests firm inflationary pressures and investors bet on further rate hikes, demand forecasts could be revised downwards, effectively neutralizing the apparent bullish effect of the latest (OPEC+) production decision,” said Tamas Varga at brokerage PVM.

The US Energy Information Administration (EIA) is due to release its short-term energy outlook on Tuesday afternoon before China’s trade data for May on Wednesday provides new demand indications for the world’s second-largest oil consumer.

Reporting by Rowena Edwards in London Additional reporting by Arathy Somasekhar in Houston and Trixie Yap in Singapore Editing by Sriraj Kalluvila and David Goodman

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