Oil prices continue to decline for a second consecutive day as concerns about a global economic slowdown resurface, undoing the earlier gains prompted by Saudi Arabia’s unexpected commitment to deepen output cuts. 

Brent crude futures dropped by 0.7%, or 56 cents, to $75.73 per barrel, while U.S. West Texas Intermediate crude futures fell by the same percentage, amounting to 52 cents, reaching $71.22 per barrel.

The decision made by Saudi Arabia over the weekend to reduce output by 1 million barrels per day in July had initially driven both benchmarks up by over $1 on Monday. 

However, apprehensions regarding a looming recession and dismal economic indicators have limited the impact of the output cuts on oil prices. The efforts made by OPEC+ to stabilize prices seem to be eroding in light of these concerns.

The American Petroleum Institute revealed a surprising increase in U.S. gasoline inventories by approximately 2.4 million barrels and a rise of about 4.5 million barrels in distillates inventories. 

This unexpected buildup has raised worries about oil consumption in the world’s largest oil-consuming nation, particularly with the growing travel demand observed during the Memorial Day weekend.

Moreover, the U.S. Energy Information Administration (EIA) announced that crude oil production in the country would increase faster this year. At the same time, demand growth is expected to cool compared to previous estimates.

China’s official data released on Wednesday revealed a greater-than-expected decline in exports for May and a decrease in imports, albeit at a slower rate. 

These figures indicate struggles faced by manufacturers in finding overseas demand and sluggish domestic consumption. However, crude oil imports in China reached their third-highest monthly level ever in May as refiners stockpiled inventories.

Despite the downward pressure on oil prices, some analysts believe that Saudi Arabia’s significant voluntary production cut will provide a lower limit to the prices. 

However, it is unlikely to sustainably drive prices into the range of high $80s to low $90s per barrel. 

Factors such as the summer driving season in the United States and tighter global supply, coupled with U.S. plans to replenish the Strategic Petroleum Reserve by purchasing crude, are anticipated to mitigate the downside risks of oil prices.