Oil prices set for a second consecutive weekly drop
Crude oil prices started trade today with a gain but were set for another weekly decline as the U.S. dollar rose further and supply concerns eased.
Brent crude was trading at over $83.88 per barrel at the time of writing, and West Texas Intermediate was changing hands at close to $79.60 per barrel, but both are seen booking a loss of 1.5% to 2.5% for the whole week.
The dollar rose on investor caution ahead of a speech by Fed Chair Jerome Powell today, the report also noted. That speech—the annual address of the Fed’s head from the Jackson Hole retreat—sets the course for monetary policy for the next year and some observers seem to believe the course to be announced today may be markedly different from the course the Fed followed in the past 12 months, per CNBC.
In the case that, per expectations, the Fed’s Chair outlines a more relaxed attitude it would be a signal that the U.S. economy is truly on the mend, which would have positive implications for oil demand. In case expectations get defied and Powell signals a continuation of the Fed’s hawking stance, this would probably add to the downward pressure on oil.
On the supply side, the possibility of more oil entering the market from Venezuela, Kurdistan, and Iran is easing some concerns. At the same time, Equinor has started production six months early at its extended Statfjord Ost field.
Meanwhile, some analysts have noted that the effect of the Saudi production cuts on international prices has run its course.
“The support to oil prices from previous production cuts has ebbed. The market is looking for Saudi Arabia to continue extending its voluntary output reductions,” Reuters cited analysts from Chinese brokerage Haitong Futures as saying.
On the other hand, “While there are signs of potential supply growth from a couple of OPEC producers, the market should continue to draw inventories for the remainder of the year,” said ING’s Warren Patterson, as quoted by Bloomberg, noting this suggested a further upside risk for prices.
China’s disappointing economic recovery, a recovery that was expected to be the driving force behind rising oil demand in the second half of 2023, only adds to bearish sentiment in oil markets this week.
