Oil prices remained relatively unchanged on Thursday following a two-day decline, including a sharp drop on Wednesday, as a U.S. government credit downgrade weighed on market sentiment. However, concerns about supply tightness provided some support to the market.
Ratings agency Fitch downgraded the main U.S. credit rating, reflecting anticipated fiscal deterioration and a high and growing government debt burden for the world’s biggest oil consumer.
Despite the overall bearish sentiment, prices received support from concerns about tightening supply due to output cuts implemented by major oil producers, which are expected to be maintained in an upcoming meeting on Friday.
Brent crude futures stood at $83.26 per barrel, up 6 cents or 0.1%, at 0422 GMT, while U.S. West Texas Intermediate crude rose by 5 cents, also 0.1%, to $79.54 per barrel.
Both benchmark prices traded close to their highest levels since April on Wednesday but experienced a 2% decline after the ratings downgrade. In July, WTI prices rose by nearly 16%, and Brent gained more than 14%.
“Since oil had a steady rise over the past month, it was ripe for a pullback. The oil market will remain tight over the short-term, but prices could still be vulnerable to a deeper drop,” said Edward Moya, an analyst at OANDA.
The supply situation was highlighted by a record 17 million barrel drop in U.S. crude stockpiles last week as refiners increased their production and exports exceeded 5 million barrels per day (bpd), according to data from the Energy Information Administration on Wednesday.
The substantial inventory drawdown, surpassing analysts’ expectations, points to global demand outpacing supply due to significant production cuts by major oil-producing countries.
The next meeting of the Organization of the Petroleum Exporting Countries and allies (OPEC+), is scheduled for August 4. Reuters reporting indicates that OPEC+ is unlikely to modify its current oil output policy, with Saudi Arabia expected to extend its voluntary 1 million bpd cut for another month, including September.
Furthermore, measures implemented by the Chinese government to boost its economy, as the world’s second-largest oil consumer, are providing some support for oil prices and fuel demand. However, detailed information about these support measures is still limited.
On Thursday, China reported that its services sector expanded at a faster pace in June, offsetting disappointing manufacturing data earlier in the week.
“China’s further stimulus policy and a sharp draw in U.S. inventory data may still be the strong fundamental reasons for a rebounding crude market,” said Tina Teng, an analyst at CMC Markets.
