Oil is on track for a fifth straight weekly gain amid a tightening market outlook. However, prices slipped slightly in Asian trade on Friday due to speculation about Chinese stimulus measures and OPEC+ output cuts. Brent crude declined 29 cents (0.3%) to $83.95 per barrel by 0600 GMT but was still set for a 3.6% weekly increase. Similarly, U.S. West Texas Intermediate (WTI) crude dropped 27 cents (0.3%) to $79.82 per barrel but was also heading for a 3.6% weekly gain.
The recent surge in oil prices was influenced by positive economic data in the U.S. and expectations of Chinese stimulus measures. Strong earnings reports and data showing that the U.S. economy grew faster than anticipated in the second quarter helped allay concerns about a global slowdown. The U.S. second-quarter gross domestic product (GDP) grew at 2.4%, surpassing the consensus estimate of 1.8%, according to the Commerce Department. Federal Reserve Chairman Jerome Powell expressed confidence in the economy achieving a “soft landing.”
In addition to the positive economic indicators, the possibility of further Chinese stimulus measures, especially in the struggling property sector, provided additional support to oil prices after a meeting of the Politburo on Tuesday.
Market participants are also looking forward to the next meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) on August 4. They anticipate announcements regarding the continuation of voluntary output cuts. Baden Moore, head of commodity and carbon strategy at National Australia Bank, believes that oil prices are likely to continue rising through the third quarter of 2023, and prices above US$90 per barrel (Brent) would be needed to prompt a relaxation of OPEC or Saudi Arabia’s voluntary crude supply cuts.
Nevertheless, concerns have been raised about long-term demand due to recent interest rate increases by global central banks attempting to curb persistent inflation. Both the U.S. Federal Reserve and the European Central Bank implemented 25 basis point interest rate hikes, which were largely expected.
Earlier in the week, oil prices fell when data revealed that U.S. crude inventories declined less than anticipated. While oil prices have been on an upward trend over the past month, there hasn’t been a significant increase in product demand, particularly within the distillates, according to Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.
