Oil prices rose on Friday, buoyed by signs of easing inflationary pressures in the United States, the world’s largest oil consumer. However, despite the uptick, Brent crude remains on track for a weekly decline.
By 12:47 GMT, Brent crude futures were up 49 cents, or 0.57%, trading at $85.89 per barrel. U.S. West Texas Intermediate (WTI) crude futures also saw a rise, gaining 69 cents, or 0.84%, to reach $83.31 per barrel. Both contracts had posted gains in the previous two sessions.
Brent futures are set to fall around 1% week-on-week, following four consecutive weekly gains. WTI futures remained relatively stable on a weekly basis.
Investor sentiment improved after data released on Thursday showed a decline in U.S. consumer prices for June. This has fueled speculation that the Federal Reserve may soon cut interest rates, potentially boosting economic growth and, consequently, fuel consumption.
However, the market remains cautious, awaiting more definitive actions. While Federal Reserve Chair Jerome Powell acknowledged the positive trend in inflation, he emphasized that more data is needed to justify a rate cut.
“Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the U.S. economy,” said Yeap Jun Rong, market strategist at IG.
The robust summer fuel demand in the U.S. also supported oil prices. U.S. gasoline demand reached 9.4 million barrels per day (bpd) for the week ending July 5, the highest for that week since 2019. Additionally, jet fuel demand on a four-week average basis was the strongest since January 2020.
“The market will remain rangebound, paralysed by opposing forces of expected demand recovery fuelled by an anticipation of a strong summer for fuels consumption … but sentiment remains pegged by ongoing economic weakness and uncertain demand recovery,” said Emril Jamil, senior oil analyst at LSEG.
The strong fuel demand prompted U.S. refiners to increase activity and draw from crude oil stockpiles. U.S. Gulf Coast refiners’ net input of crude rose last week to over 9.4 million bpd, the highest since January 2019.
Conversely, weaker demand signals from China, the world’s largest oil importer, could offset the positive outlook from the U.S. and weigh on prices.
“The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year,” said Tamas Varga of oil broker PVM.
Analysis and Market Implications:
The easing of U.S. inflation and the potential for rate cuts by the Federal Reserve could lead to increased economic activity, driving up fuel demand. This scenario presents an opportunity for investors to capitalize on rising oil prices. However, the market remains cautious due to mixed signals from global economic data, particularly from China. Investors should monitor these developments closely, as they will significantly influence oil price movements and trading strategies.
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