Oil weakens on demand concerns as focus turns to Fed

Oil fell on Thursday as worries about weakening demand in a global economic slowdown overshadowed a pending drop in supply resulting from Saudi Arabia’s pledged production cuts.

Both oil benchmarks settled up by about 1% on Wednesday, supported by the Saudi plan to cut output by 1 million barrels per day in July, though prices remained capped by rising U.S. gasoline stocks and weak Chinese economic data.

Brent crude fell 28 cents, or 0.4%, to $76.67 a barrel by 0930 GMT while U.S. West Texas Intermediate crude slipped 27 cents, or 0.4%, to $72.26.

“Oil prices have been attempting to recover lately,” said IG market strategist Yeap Jun Rong. “But it has been a struggle.”

Coming into focus is the U.S. Federal Reserve’s June 13-14 meeting. While economists polled by Reuters do not expect the Fed to raise interest rates this time, a significant minority expects at least one more increase this year.

“With the OPEC+ meeting out of the way, focus is now shifting towards the next move the Fed will make when it meets next week,” said Tamas Varga of oil broker PVM.

There is growing consensus that the central bank will skip a rate hike, which could lift oil prices even before falling supply starts draining global oil inventories, Varga added.

Still, a surprise rate increase in Canada gave investors their second reminder of the week that the surge in global interest rates is not done yet.

The U.S dollar was slightly weaker on Thursday, making oil cheaper for buyers holding other currencies.

A larger than expected rise in U.S. gasoline inventories also raised demand concerns while U.S. crude stockpiles registered a small decline of 451,000 barrels.