Oil markets

Oil markets experienced a modest increase in early Asian trade on Friday as traders engaged in short-covering ahead of the weekend. Brent crude futures rose by 0.5% to $75.34 a barrel, while US crude futures gained 0.6% to $71.28, recovering from recent losses.

Despite this rebound, uncertainties surrounding the US debt ceiling and a potential regional banking crisis in the country capped gains. Hiroyuki Kikukawa, president of NS Trading, stated, “Traders covered short positions ahead of the weekend, but concerns over a political standoff over the U.S. debt ceiling and increased worries about a US regional banking crisis limited gains.”

Additionally, fears over slow recovery in China’s fuel demand contributed to the market’s bearish mood, which is expected to persist in the following week.

However, some speculate that the U.S. may repurchase oil for the Strategic Petroleum Reserve (SPR) if WTI falls to around $70 a barrel, which could support prices. The US government has said it will buy oil when prices are consistently at or below $67 to $72 per barrel.

Meanwhile, U.S. Treasury Secretary Janet Yellen urged Congress to raise the $31.4 trillion federal debt limit to avert an unprecedented default that could trigger a global economic downturn.

Adding to market concerns, shares of PacWest Bancorp fell by 23% on Thursday, signaling a potential regional banking crisis. The bank reported declining deposits and increased collateral to the US Federal Reserve to boost liquidity.

Furthermore, weak demand in China remains a worry, with April’s consumer price data rising at a slower pace and factory gate deflation deepening, suggesting more stimulus may be necessary to bolster the post-COVID-19 economic recovery.

Despite these uncertainties, the oil market ignored the Organization of the Petroleum Exporting Countries (OPEC) global oil demand forecast for 2023, which projected an increase in demand from China, the world’s biggest oil importer. As for the week, both benchmarks were on track for little change after three consecutive weeks of declines.


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