Oil prices down for fourth straight week, delicate balance ahead

Oil prices experienced a decline of over 1% on Friday, marking the fourth consecutive week of falling prices. By the start of the new week, oil prices were on a delicate balance between concerns over oil supply and renewed economic worries in the world’s two biggest oil consumers, the US and China.

Oil ends last week on weak note

Brent crude futures settled at $74.17, down 1.1% or 81 cents, while US West Texas Intermediate (WTI) crude futures fell 1.2% or 83 cents to $70.04/bbl, both benchmarks around 1.5% lower compared to the previous Friday. Although they pared some of Friday losses on Monday’s training, weak fundamentals continue to exert pressure on the sustainability of the upward run.

After oil prices hit 15-month lows in mid-March, OPEC+ made a decision in early April to reduce oil production, providing a boost to prices. However, as time passed, oil prices gradually returned to their late March-early April levels. The main contributing factor to this situation was the decision by major central banks to raise interest rates in response to the persistent problem of inflation. This led to a global economic slowdown, directly affecting the demand for oil.

Considering the unfavorable economic outlook and expectations of reduced demand, analysts concur that there is a likelihood of oil prices remaining under pressure. Analysts also argue that this could occur regardless of any surprises the cartel might have in store.

Stronger US dollar exerts pressure

The US dollar managed to hold onto modest gains against the euro on Friday, positioning itself for the largest weekly gain since February. This was attributed to uncertainty surrounding the US debt ceiling and monetary policy, which led to a shift towards safer assets. A stronger dollar typically exerts downward pressure on oil prices, as it raises the cost of the dollar-denominated commodity for holders of other currencies.

Recessions fears start to grow

Economic analysts also began sounding the alarm once more, predicting an upcoming downturn that could lead to a US recession in the latter half of 2023. In a statement made on Friday, Fed Governor Michelle Bowman stated that if inflation remains high, the US central bank will likely need to further increase interest rates.

China’s growth data disappoints

In April, China’s year-on-year Consumer Price Index (CPI) grew by only 0.1%, which is the slowest since early 2021. According to a survey of economists, consumer prices were anticipated to rise by 0.4% year-on-year and remain unchanged from the previous month.

Some support from supply deficit forecasts

Despite these factors, the market received some support from the forecasted emerging supply deficit in the second half of the year. During Monday sessions, Brent crude futures rose by 1.20% or $1.71 to $75.44/bbl as of 10:43 AM EDT, while US WTI crude reached $71.24/bbl, up 1.71% or $1.20.