Oil Prices’ Seven-Week Rally in Jeopardy as Global Demand Concerns Rise

- Entertainment - August 19, 2023
Oil Prices
Oil Prices

Oil Prices’ Seven-Week Rally in Jeopardy as Global Demand Concerns Rise

Oil prices surged by around one dollar per barrel on Friday due to indications of a slowdown in US output. However, both key crude benchmarks appear poised to conclude their lengthiest rally of 2023, largely due to mounting apprehensions regarding global demand growth.

US West Texas Intermediate (WTI) crude futures experienced an increase of $1.08, equivalent to 1.3%, reaching $81.47 a barrel by 1708 GMT. Similarly, the global Brent crude benchmark ascended by 81 cents, signifying a 1% rise, reaching $84.93 a barrel.

Both benchmarks achieved upward momentum on Friday following industry data that showcased a consistent decline in the US oil and natural gas rig count for the sixth successive week. This count acts as an early indicator of future production.

Should US production continue to plummet, it could potentially exacerbate an anticipated supply shortage throughout the rest of the year.

These concerns have been further fueled by output reductions from the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, which have contributed to oil prices witnessing a continuous surge over seven consecutive weeks since June. Within this time frame, Brent crude escalated by approximately 18%, and WTI saw a growth of 20%, culminating in the week ending on August 11.

However, the current week indicates a potential 2% decline in oil prices. This can be attributed to the escalating property crisis in China, which has intensified concerns about the nation’s sluggish economic recovery. This, in turn, has curbed investors’ appetite for risk across various markets.

Rob Haworth, Senior Portfolio Manager at US Bank Asset Management, emphasized that investor apprehensions are primarily centered around the interplay between decelerating global growth and the still-constricted global supplies.

Haworth noted, “Prices are likely to remain range bound for now,” adding that the weak data from China has cast uncertainty on demand, further heightening concerns.

Another concern gaining traction is the uncertainty regarding whether the US Federal Reserve has concluded its series of interest rate hikes aimed at tackling inflation. Elevated borrowing costs can potentially hinder economic growth, subsequently reducing overall demand for oil.

Jay Hatfield, CEO of Infrastructure Capital Management, also mentioned that oil benchmarks have been influenced by the autumnal seasonal weakness in demand.

In conclusion, despite the recent positive trajectory, oil prices now face a series of challenges, primarily stemming from concerns about global economic dynamics and uncertainties surrounding demand and supply factors.