Oil dips as global economy takes precedence

Oil price dips
Oil price dips

Oil fell for the first time in a week as concern over the slowing global economy took precedence over geopolitical tensions, while investors waited for an indication on the Federal Reserve’s rate-cut path.

Futures in New York declined as much as 0.5% after closing 0.3% higher on Monday. Fed Chairman Jerome Powell is scheduled to testify to Congress on Wednesday and Thursday. The Middle East remained tense as BP Plc kept a ship in the Persian Gulf for fear it might be seized by Iran in retaliation for British forces arresting a vessel carrying the Islamic Republic’s crude last week.

A rally in crude that was mainly driven by the U.S.-Iran standoff faltered last week as investors fretted over the possibility of deteriorating demand even as the Organization of Petroleum Exporting Countries and its allies extend their output curbs. The chances that the U.S. and China will resolve their trade dispute in the near term appear low, so investors are increasingly hoping for monetary stimulus to revive consumption.

“Investors and traders are waiting to hear what direction the Fed will be taking before placing their bets,” said Sungchil Will Yun, a commodities analyst at HI Investment & Futures Corp. in Seoul. “Concerns on the outlook for the global economy seem to be outweighing big events like the Middle East tensions at the moment.”

West Texas Intermediate oil for August delivery fell 23 cents, or 0.4%, to $57.43 a barrel on the New York Mercantile Exchange as of 11 a.m. in Singapore after dropping as much as 29 cents earlier. The contract rallied 2.2% from last Tuesday’s close through Monday.

Brent for September settlement lost 26 cents, or 0.4%, to $63.85 a barrel the ICE Futures Europe Exchange. The contract closed 0.2% lower on Monday. The global benchmark crude traded at a $6.33 premium to WTI for the same month.

The Fed’s next interest-rate decision is on July 31 and speculation is building the U.S. central bank is getting ready to cut, so Powell’s testimony will be watched closely.

British Heritage, the BP-run tanker, is now idling off Saudi Arabia’s coast after it made a u-turn before it was scheduled to pick up crude from Basrah. Iran’s deputy foreign minister said on Sunday he considered the seizure by British forces to be an act of piracy, while a former leader of Iran’s Revolutionary Guard said the Islamic Republic should take a British tanker in response.