Oil Prices Set for Second Week of Gains as U.S. Economy Resilient and Interest Rates Fall
Oil prices dipped slightly in Asian trade on Friday, but are on track for a second consecutive week of gains. Optimism surrounding a robust U.S. economy and decreasing interest rates has fueled hopes for improved demand. Continued caution over a potential Iranian strike against Israel has also contributed to a risk premium being attached to crude, following recent attacks by Hezbollah and Hamas.
However, concerns persist over a slowdown in China, the world’s largest oil importer. Mixed economic data released earlier in the week has done little to boost sentiment. Despite this, both Brent crude and WTI prices were set to rise between 1.5% and 2% for the week, supported by strong U.S. economic indicators and signs of easing inflation.
July’s better-than-expected retail sales figures have raised hopes for sustained consumer resilience in the U.S., providing a positive outlook for fuel demand. Moreover, indications of cooling inflation have reinforced expectations of an interest rate cut by the Federal Reserve in September. Lower interest rates typically lead to increased demand for crude oil.
On the flip side, an unexpected increase in U.S. inventories has hinted at a potential cooling of demand as the summer travel season winds down. Meanwhile, worries surrounding China’s economic performance have weighed on oil markets, with the country’s oil imports declining for a second consecutive month in July.
Both OPEC and the IEA have revised down their forecasts for global oil demand growth in 2024, citing policy uncertainty in China and ongoing economic weaknesses. These concerns underscore the delicate balance in the oil market between demand-side optimism and supply-side uncertainties.