Oil rally takes a breather before Fed and ECB rate hikes

Oil prices slipped on Monday as traders await further rate hike signals from US and European central banks, as well as supply cuts and hopes for Chinese stimulus to keep WTI crude at $76 a barrel.

The benchmark indices rose 1.5% and 2.2% respectively last week, marking their fourth consecutive weekly gains as supply is expected to shrink following OPEC+ cuts. Fighting also escalated last week in Ukraine after Russia withdrew from a UN-brokered safe maritime corridor for grain exports.

“While another Fed rate hike this week could lead to some short-term price volatility, we expect tightening market conditions due to OPEC supply cuts and increased market speculation about further stimulus in China to continue pushing prices higher in Q3 2023,” analysts at the National Australian Bank said in a note.

This week, investors valued the Federal Reserve and European Central Bank rate hikes by a quarter of a point, so the focus will be on what Fed Chairman Jerome Powell and ECB President Christine Lagarde have to say about future rate hikes.

Rising interest rates weakened investment and strengthened the dollar, making dollar-denominated goods more expensive for holders of other currencies.

Market participants also expect Beijing to take targeted stimulus measures to support its weakening economy, which is likely to increase demand for oil from the world's second largest consumer.

On the proposal, United Arab Emirates Energy Minister Suheil al-Mazrui said on Friday that OPEC+'s actions to support the oil market are sufficient for now and the group is "only a phone call away" if any further steps are needed.

Last week, U.S. energy companies implemented the deepest reduction in oil rigs since early June, with the number of operating units reduced by seven to 530, energy company Baker Hughes said Friday.