Oil Prices Remain Steady Despite Weak Economic Outlook
Oil prices have remained steady despite a weak economic outlook, with central banks not done with interest rate increases that could slow economic growth and reduce oil demand. Brent crude fell 26 cents, or 0.3 percent, to $75.41 a barrel by 11:10 a.m. Saudi time, while US West Texas Intermediate crude slipped 24 cents, or 0.3 percent, to $70.38. Both benchmarks surged about 3 percent on Thursday.
Supply Cuts and Higher Demand from China Tighten Market
Oil prices have been supported by hopes that supply cuts from the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, and higher demand from top crude importer China will tighten the market in the second half of the year. China’s refinery throughput rose in May to its second-highest total on record. OPEC raised its forecast for 2023 Chinese oil use this week and the CEO of Kuwait Petroleum Corp. expects Chinese demand to keep climbing during the second half of the year.
Analysts Expect Supply Deficit to Kick In Soon
Analysts expect voluntary crude output cuts implemented in May by OPEC+, plus an additional cut by Saudi Arabia in July, to support prices. There is robust support around $70-$71 and a supply deficit should kick in soon, said Tamas Varga of oil broker PVM. “Consequently, dips to the year’s low will always be viewed as tempting buying opportunities unless investor sentiment takes a turn for the worse,” Varga said.
Weaker Dollar Boosts Demand
Oil was also buoyed by a weaker dollar, which fell to a one-month low against a basket of currencies on Thursday. A weaker dollar makes oil cheaper for buyers with other currencies, which can boost demand.
Outlook Remains Vulnerable to Further Shocks
Despite the positive news, a weak economic outlook continues to dog market sentiment. “Crude prices are trying to find support as the global growth outlook remains vulnerable to further shocks from aggressive rate hiking campaigns,” OANDA analyst Edward Moya said in a note. The Bank of England is set to raise interest rates by a quarter point next week. The European Central Bank lifted rates to a 22-year high on Thursday and the Federal Reserve signaled at least a half of a percentage point increase by year-end.
Conclusion
Oil prices remain steady despite a weak economic outlook, with central banks not done with interest rate increases that could slow economic growth and reduce oil demand. However, supply cuts from OPEC+ and higher demand from China are expected to tighten the market in the second half of the year. Analysts expect a supply deficit to kick in soon, which should support prices. A weaker dollar has also boosted demand for oil. Despite the positive news, the global growth outlook remains vulnerable to further shocks from aggressive rate hiking campaigns, which could impact oil demand.