Oil prices in Asian trade on Friday experienced a notable increase, remaining close to 10-week highs due to the anticipation of limited supplies. This surge was attributed to disruptions in Libya and Nigeria, alongside the release of data indicating a drop in U.S. inflation, which further bolstered market sentiment.
During the course of this week, crude markets displayed a significant rally, tracking the decline in the value of the dollar. The release of U.S. inflation data, which fell below expectations, fueled speculations that the Federal Reserve was nearing its peak interest rates.
At 21:56 ET (01:56 GMT), Brent oil futures climbed 0.3% to reach $81.54 per barrel, while West Texas Intermediate crude futures rose 0.3% to $77.12 per barrel. These figures marked the highest levels observed since late-April and indicated an increase of 3.8% to 4.5% over the course of the week, making it the third consecutive positive week for oil prices.
Disruptions in Libya and Nigeria contribute to tightening supplies as demand shows signs of improvement. On Thursday, protests by local tribes over the kidnapping of a former minister resulted in the shutdown of several Libyan oil fields, including the country’s second-largest field, Sharara.
In a separate event, Shell PLC (LON:SHEL), a prominent British oil and gas company, suspended crude loading at Nigeria’s Forcados terminal due to a suspected pipeline leak.
These disruptions in oil supply occurred following substantial production cuts by Saudi Arabia and Russia, underscoring the potential for tighter oil markets in the coming months. The Organization of Petroleum Exporting Countries (OPEC) also predicted increased global oil demand in 2023 in its monthly report released on Thursday.
Supporting this expectation, data revealed that China, the largest importer of crude oil worldwide, witnessed near-record high oil imports in June as refinery demand picked up in the country. However, fuel demand in China has remained sluggish, raising doubts about its ability to drive global oil consumption growth this year.
Furthermore, U.S. inventory data indicated a substantial slowdown in gasoline demand in the previous week, partly influenced by adverse weather conditions in certain regions of the country. This decline in fuel demand during the typically travel-intensive summer season was considered atypical.
The surge in oil prices this week can be attributed to the weakening of the dollar, which reached its lowest point in 15 months following underwhelming U.S. inflation data. The rally in oil markets, initially triggered by soft consumer price index data on Wednesday, extended into Thursday due to weaker-than-expected producer price index data.
These figures instilled hopes that the Federal Reserve may have limited grounds to continue raising interest rates throughout the year, although some officials still suggested the possibility of at least two more rate hikes.
Nevertheless, despite the anticipation of an interest rate hike by the Federal Reserve later in July, markets have begun to question the necessity of a September hike.
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