Oil prices witnessed an upward trajectory on Thursday, propelled by Saudi Arabia’s unexpected reduction in production and growing indications of increased demand from Asian markets. However, concerns regarding the crucial western markets have somewhat curbed the gains.
As of 09:10 ET (13:10 GMT), U.S. crude futures experienced a 0.3% uptick, reaching $72.73 per barrel, while the Brent contract saw a similar 0.3% rise, reaching $77.14 per barrel.
Saudi Arabia’s decision, announced on Sunday, to slash its crude output by 1 million barrels per day in July, in addition to the broader OPEC+ agreement to limit supply until 2024, has provided a supportive foundation for the market.
Resurgence in Asian demand
Moreover, there are indications of a gradual revival in demand from Asia. The latest data from the Petroleum Planning & Analysis Cell in India reveals a 9% year-on-year increase in petroleum products demand in May 2023.
According to analysts at ING, “Crude oil demand from Asia has been steadily recovering in recent months, as the pace of interest rate hikes slows down and economic growth gains momentum.”
Focus on the Federal Reserve meeting
With the meeting of major crude producers now concluded, attention is shifting towards the Federal Reserve’s upcoming decision on interest rates, scheduled for next week.
If the Federal Reserve chooses to pause its rate-hiking cycle, it is likely to bolster the crude market by indicating reduced pressure on economic activity in the United States, which stands as the world’s largest consumer of crude oil. Additionally, this decision would weaken the U.S. dollar, making commodities like oil, which are denominated in the U.S. currency, more affordable for foreign buyers.
Economic slowdown concerns in the U.S. and Europe
Nevertheless, concerns about sluggish business activity in both the United States and Europe have limited the gains.
Recent data released on Thursday revealed that the eurozone economy officially entered a technical recession in the first quarter of 2023, following downward revisions of growth for both the first and final quarters of 2022.
Furthermore, the number of Americans filing new claims for unemployment benefits surged by 28,000 to reach 261,000 last week, indicating a slowdown in the labor market amid increasing risks of a recession.
Additionally, apprehension has arisen due to a larger-than-expected rise in U.S. gasoline inventories, raising concerns about demand, particularly as this surge in stocks occurred during the peak U.S. driving season.
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