Brent crude futures for August dropped 84 cents, or 0.7%, to $117.14 a barrel by 0444 GMT. The August contract will expire on Thursday and the more-active September contract was at $113.17, down 63 cents, or 0.6%.
U.S. West Texas Intermediate (WTI) crude futures slid 54 cents, or 0.5%, to $111.22 a barrel.
Both contracts rose more than 2% on Tuesday as concerns over tight supplies due to Western sanctions on Russia outweighed fears of that demand may slow in a potential future recession.
“The market is stuck in the push-pull between the current deteriorating macro backdrop and the looming threat of a recession, pitted against the strongest fundamental oil market set up in decades, maybe ever,” RBC Capital’s Mike Tran said in a note.
Saudi Arabia and the United Arab Emirates have been seen as the only two members of the Organization of the Petroleum Exporting Countries (OPEC) with spare capacity to make up for lost Russian supply. However, comments from UAE Energy Minister Suhail al-Mazrouei and French President Emmanuel Macron this week indicated little room for these producers to increase output further.
“Investors made position adjustments, but remained bullish on expectations that Saudi Arabia and the United Arab Emirates would not be able to raise output significantly to meet recovering demand, driven by a pick-up in jet fuels,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.
“Oil prices will likely stay above $110 a barrel, also on worries of potential supply disruptions due to hurricanes as the United States enters the summer,” he said.
Analysts also warned political unrest in Ecuador and Libya could tighten supply further.
More changes to Russian oil trade may come after the Group of Seven economic powers agreed on Tuesday to explore ways to cap the price of Russian oil, allowing more supplies into the market while curbing Moscow’s revenues.
However, traders and analysts are sceptical about how it would work and that such an agreement will require cooperation from China and India.
“A price cap may have a limited effect unless it is adopted by all countries, globally,” FGE analysts said.
In the United States, crude inventories are forecast to have fallen for the last two weeks, according to a Reuters poll. The government’s weekly petroleum status report last week was delayed due to a hardware issue. The data for both weeks will published together on Wednesday.
Data from American Petroleum Institute showed gasoline and distillates stocks rose while crude inventories fell for the week ending June 24, according to market sources citing API figures on Tuesday.
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