Oil prices experienced a rise on Friday, marking their second consecutive weekly gain. This increase was attributed to resilient demand, which resulted in a larger-than-expected decline in U.S. oil stockpiles. These positive factors outweighed concerns about higher U.S. interest rates.
At 1114 GMT, Brent crude futures climbed by 36 cents, or 0.5 percent, reaching $76.88 per barrel. Likewise, U.S. West Texas Intermediate crude rose by 35 cents, or 0.5 percent, reaching $72.15 per barrel. Both benchmarks were set to achieve gains of over 2 percent for the week.
Brent’s six-month backwardation, a situation where nearby contracts are traded at higher prices compared to later ones, indicative of supply tightness, has been rapidly increasing in recent sessions and reached a one-month high on Friday. Nonetheless, Brent is still trading at a $10 per barrel deficit compared to its peak in April. Since early May, the price has fluctuated within the range of $71 to $79 per barrel due to concerns about interest rate hikes and weak economic data from China.
Notably, the U.S. Energy Information Administration announced that U.S. crude stocks had declined more than anticipated, and there was also a significant draw in gasoline inventories. Additionally, major oil exporters Saudi Arabia and Russia announced further output cuts this week, bringing the total cuts by OPEC and its allies to approximately five million barrels per day. This reduction represents around 5 percent of global oil demand.
Despite the positive developments, the potential increase in U.S. interest rates remained a limiting factor on oil price gains. Many now expect that the U.S. Federal Reserve will raise interest rates at its meeting on July 25–26. This move could potentially hinder economic growth and subsequently impact oil demand. However, data released on Thursday indicated moderate growth in the number of Americans filing new claims for unemployment benefits, alongside a surge in private payrolls in June. More employment data from the U.S. is expected to be revealed at 1230 GMT.
Analysts from Commerzbank expressed doubts about significant market tightening due to concerns about slowing oil demand growth, primarily driven by increasing interest rates and disappointing economic data from China. Unless these factors change, market participants are unlikely to share concerns about a significant tightening in the oil market.
Investors will closely monitor inflation data from the U.S. and China next week to gain insights into the potential future paths of interest rates. These figures will play a crucial role in shaping market sentiment and determining the direction of oil prices.
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