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Brent crude futures were down $1.50, or 1.96%, to $75.21 a
barrel by 1046 GMT. U.S. West Texas Intermediate crude fell
$1.47, or 2.04%, to $70.68 a barrel.
Brent had gained as much as $2.60 per barrel on Monday and WTI
as much as $3.30 after Saudi Arabia, the world's top exporter,
said at the weekend its output would drop by 1 million barrels
per day (bpd) to 9 million bpd in July.
But weaker demand, stronger non-OPEC supply, potential
recessions in the U.S. and Europe, and lower growth in China
means Saudi's cut is unlikely to underpin a "sustainable price
increase" into the high $80s-low $90s, Citi analysts said in a
note on Tuesday.
Backwardation in Brent crude oil futures — where the current
value is higher than in later months — steepened after the
weekend announcement with the six-month spread hitting a
five-week high of $2.20/bbl on Monday.
It fell to around $1.96/bbl on Tuesday.
"The market remains focused on the risk to demand with recession
concerns mounted on a broad-based miss in U.S. services PMI
giving room for a Fed pause on rates," said Ole Hansen, head of
commodity strategy at Saxo Bank.
The U.S. services sector barely grew in May as new orders
slowed, and market participants are waiting to see if the U.S.
Federal Reserve will hike or hold interest rates in June.
Higher interest rates could curb energy demand.
The mood was further dented by data that showed German
industrial orders fell unexpectedly in April.
"If upcoming economic data suggests entrenched inflationary
pressure and investors bet on further hikes in interest rates,
demand predictions could be revised downwards, effectively
neutralising the ostensibly bullish impact of the latest (OPEC+)
output decision," Tamas Varga of brokerage PVM said.
The U.S. Energy Information Administration (EIA) is due to
release its short-term energy outlook on Tuesday afternoon,
while China's May trade data on Wednesday will give fresh 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 Jason Neely)
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