Oil prices poised for a turnaround, breaking a two-week losing streak with a slight dip in early Friday trading. This decline comes amidst positive expectations for increased energy demand from China, the world’s leading crude importer, and a decline in the value of the dollar.
During the early hours of Friday, Brent futures slipped by 17 cents or 0.2% to reach $75.50 per barrel, while U.S. West Texas Intermediate (WTI) crude saw a 0.2% drop of 16 cents, settling at $70.46 per barrel. Despite this marginal decline, both benchmarks experienced a significant surge of approximately 3% during the previous session.
Recent data reveals that China witnessed a remarkable 15.4% rise in its oil refinery throughput in May compared to the same period last year, marking the second-highest total ever recorded. The CEO of Kuwait Petroleum Corp has confidently predicted that Chinese oil demand will continue to climb steadily throughout the latter half of the year.
In the United States, Thursday’s data release showcased an unexpected increase in retail sales for May, along with higher-than-anticipated jobless claims from the previous week. This coincided with a decline in the value of the dollar, reaching its lowest point in five weeks when compared to other major currencies.
The weakened dollar makes oil more affordable for holders of alternative currencies, thereby potentially boosting demand. Additionally, analysts anticipate that the voluntary cuts in crude output initiated by the Organization of the Petroleum Exporting Countries (OPEC), its allies, and Saudi Arabia in May and July respectively, will lend support to prices.
However, market sentiment remains overshadowed by concerns of a weak economic outlook, exemplified by China’s industrial output and retail sales growth falling short of expectations for the month of May.
Edward Moya, an analyst at OANDA, commented, “Crude prices are attempting to stabilize given the uncertain global growth outlook, which remains vulnerable to further shocks arising from aggressive interest rate hikes.”
As anticipated, the European Central Bank raised interest rates to a 22-year high on Thursday. This week, the U.S. Federal Reserve indicated a likelihood of at least a half-percentage-point increase by the end of the year.
Ultimately, higher interest rates lead to increased borrowing costs for consumers, potentially slowing down economic growth and subsequently reducing oil demand.
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