Oil Steady As Demand Woes From Weak Economic Data Offset By OPEC+ Cuts

Oil prices were little changed on Monday in choppy trading as demand woes after weak economic data from top consumers the United States and China were offset by expected crude supply cuts from Saudi Arabia and Russia.

Brent crude futures were flat at $78.47 a barrel at 12:10 a.m. ET (1610 GMT). They touched their highest in more than two months earlier in the session.

U.S. West Texas Intermediate crude was down 4 cents, at $73.82.

“Oil traders may be cautious ahead of the U.S. CPI (Consumer Price Index) and China’s slew of economic data later this week,” CMC Markets analyst Tina Teng said of inflation data due on Wednesday.

U.S. data last Friday pointed to the smallest job gains in two-and-a-half years but strong wage growth. The figures strengthen the likelihood of the U.S. Federal Reserve raising interest rates at its July meeting.

Federal Reserve Bank of Cleveland President Loretta Mester said on Monday that still-strong levels of underlying inflation pressures are pointing the central bank toward more rate rises.

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

Meanwhile, oil demand from China and developing countries, combined with OPEC+ supply cuts, is likely to keep the market tight in the second half of the year despite a sluggish global economy, the head of the International Energy Agency (IEA) said.

That comes as China’s factory gate prices fell at the fastest pace in more than seven years in June, according to government data, indicating a slowdown in recovery in the world’s second-largest economy.

However, crude prices could rebound after producer group OPEC+ announced plans to reduce supply further, Teng added.

Oil benchmarks gained more than 4% last week to touch their highest since May, rising for a second straight week after the world’s biggest oil exporters, Saudi Arabia and Russia, pledged to deepen supply cuts in August.

Saudi Arabia will extend its 1 million barrel per day (bpd) output cut into August and Russia will cut crude exports by 500,000 bpd. Instead of cutting output, Russia will be using the crude to produce more fuel to meet domestic demand, a government source told Reuters on Friday.

“The beginning of July and the implementation of a Saudi production cut help trigger short covering in WTI and fresh buying of Brent,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Money managers stepped up net long positions in oil futures and options contracts in the latest weekly data.

“Overall, the combined net long increased by 49,000 contracts to 280,000, still within the range that has prevailed during two months of range-bound trading,” Hansen added.