Oil prices experienced a slight increase on Friday, as Brent crude appeared set for its initial monthly gain of the year. The surge was driven by a significant depletion in U.S. oil reserves, offsetting concerns over potential repercussions on fuel demand due to upcoming interest rate hikes.
As of 0405 GMT, Brent crude futures for September delivery climbed by 16 cents or 0.2%, reaching $74.67. The front-month contract, which expires on Friday, showed a 30-cent rise to $74.64.
Meanwhile, U.S. West Texas Intermediate crude (WTI) saw a modest gain of 8 cents or 0.1%, settling at $69.95.
Both benchmarks were on track to record an increase of over 2.5% for the month of June, marking Brent’s first monthly gain in 2023 and the second for WTI since April.
Although the monthly gains seem probable, Brent is expected to exhibit a quarterly loss of approximately 6%, while WTI is projected to decline by around 7%.
Investors remain concerned about tightening supply following a remarkable 9.6 million-barrel drop in U.S. crude inventories during the week ended June 23, significantly surpassing the 1.8-million-barrel draw forecasted by analysts in a Reuters poll.
Simultaneously, the first-quarter U.S. gross domestic product (GDP) was revised upward to an annualized rate of 2.0% from the previously reported pace of 1.3%.
Yeap Jun Rong, a market analyst at IG, noted, “A significant upward revision (of U.S. GDP data) adds to the list of positive economic surprises in the US lately, with economic resilience aiding in calming some nerves around recession concerns, at least for now.”
The robust U.S. economic data and the reduction in oil stocks coincide with Saudi Arabia’s plans to decrease output by an additional 1 million barrels per day in July. This reduction complements the broader OPEC+ agreement aimed at limiting supply until 2024.
Data from Refinitiv revealed that Russia’s seaborne oil exports from Primorsk, Ust-Luga, and Novorossiisk are expected to decline to 1.9 million barrels per day (bpd) in July, compared to 2.3 million bpd in June, as domestic refineries increase their operations. This could further tighten the global supply of crude oil.
Nevertheless, the increase in oil prices on Friday was tempered by weak economic data from China and concerns over potential interest rate hikes.
China’s official factory survey revealed that manufacturing activity contracted for the third consecutive month in June, albeit at a slower pace. Non-manufacturing activity also declined during the same period.
Robert Carnell, regional head of research at ING, commented, “It was not much of a surprise to see…though perhaps the fact that the contraction is relatively stable is a source of some comfort. At least things aren’t getting noticeably worse.”
In the United States, Federal Reserve Chair Jerome Powell signaled a likely resumption of the rate-hike campaign after a recent pause, following a fresh wave of stronger-than-expected economic data.
Later in the day, the U.S. oil rig count data, an indicator of future supply, was set to be released.
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