Oil prices in Asian trade soared on Friday, poised for a higher settlement after a week of volatility. The market’s optimism regarding the U.S. debt ceiling overshadowed concerns about an oversupply of oil and worsening economic conditions.
Although crude prices experienced a slight decline on Thursday, they managed to retain a significant portion of the gains achieved earlier in the week. This positive momentum was driven by indications of progress from U.S. policymakers in raising the debt limit and avoiding a default.
Traders also seized the opportunity to buy into heavily discounted markets, capitalizing on four consecutive weeks of losses.
At 23:06 ET (03:06 GMT), Brent oil futures rose by 0.7% to reach $76.42 per barrel, while West Texas Intermediate crude futures increased by the same percentage, reaching $72.33 per barrel. These figures represented a weekly gain between 2% and 3%, marking the largest weekly surge since early-April.
The oil market received a boost when the Biden administration announced its intention to replenish the Strategic Petroleum Reserve. Additionally, signs of increased U.S. fuel demand ahead of the summer season further contributed to the positive sentiment.
However, the overall outlook for oil markets remains gloomy, particularly due to weak economic data emerging from China. Recent reports on industrial production and retail sales fell short of expectations, suggesting that the post-COVID recovery in the country is losing momentum.
This raises doubts about China’s ability to drive oil demand growth this year.
The appreciation of the U.S. dollar also limited gains in the crude markets. A stronger dollar renders commodities more expensive for foreign buyers. The dollar’s strength was bolstered by a series of hawkish comments from Federal Reserve officials, warning that persistent inflation is likely to keep interest rates higher for an extended period.
Adding to this notion, weekly jobless claims experienced a larger-than-anticipated decrease, propelling the dollar to a nearly two-month high. All eyes are now on a panel discussion involving Fed Chair Jerome Powell later on Friday, as investors seek further clues regarding monetary policy.
Throughout this year, fears of rising interest rates and slowing economic growth have weighed heavily on oil prices. Markets are concerned that a U.S. recession, and potentially a global one, will curtail crude demand.
Data released this week revealed that crude supplies in the world’s largest oil consumer remain excessive, with U.S. inventories expanding at the fastest pace in almost three months for the week ending on May 12.
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