Oil Prices Set For A Weekly Decline As Economic Concerns Mount - OilPrice.com
Oil Prices Set For A Weekly Decline As Economic Concerns Mount | OilPrice.com
Oil prices have been on the rise for seven weeks but this could reverse this week, as concerns about China’s growth and U.S. interest rates take the upper hand again.
In the past couple of months, that concern was displaced by growing unease about global supply as Saudi Arabia implemented and then extended production cuts that have seen its output drop to 9 million bpd.
Drawdowns in global oil stocks also contributed to that unease, pushing prices higher and keeping them there for seven weeks in a row.
Yet the latest economic data from China has prompted a return to fears about oil demand in the world’s largest importer even if oil-related data coming out of China remains quite robust.
Then there is the prospect of more rate hikes in the United States, which has contributed strongly to the return of bearishness on oil markets.
“Crude prices are heavy as Wall Street grows nervous with the outlooks for the world’s two largest economies — the U.S. and China,” Oanda senior market analyst Ed Moya told Bloomberg this week, as prices dived to the lowest in three weeks.
“More traders are realizing that U.S. soft-landing prospects might not be a good thing for conquering inflation.”
The prospect of more rate hikes is coming amid upbeat economic data, including the latest weekly jobless claims count and the latest monthly retail sales data, both of which suggest the U.S. economy is moving in a positive direction.
For the Fed, however, this direction is not exactly positive because a tight labor market and higher spending could keep inflation higher for longer, hence the return of more rate hike expectations among traders.
Despite all this, supply concerns have not disappeared. "Momentum indicators are showing supply tightness. Investors have started increasing their bullish bets, net-long positions are reaching an annual high," ANZ analysts said in a note today, as quoted by Reuters.
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By Irina Slav for Oilprice.com
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Related Knowledge Center: ENERGY BASICS: petroleum
While electric-powered vehicles may be the ride of the future, oil remains at least for now the dominant fuel for transportation around the world. And after a period of time at the end of the 20th century when oil was subject to wide fluctuations in price, new supplies in North America as a result of non-conventional recovery techniques have helped stabilize prices.