Oil prices have been in a downward spiral over the past few days, with Brent crude oil dropping more than 9% since Friday and US West Texas Intermediate (WTI) crude plummeting almost 11% from Friday to Wednesday’s close.
However, on Thursday, oil prices began to stabilize with Brent crude oil rising by 0.7% to $72.83 a barrel while WTI crude increased by 0.4% to $68.88 a barrel.
Despite the slight rebound, concerns about demand in major oil consumers like China continue to overshadow the market.
While the recent decline in oil prices can be attributed to a combination of factors but the US Federal Reserve’s decision to raise interest rates to their highest since 2007 on Wednesday was what triggered concerns that the global economy may struggle in the near term.
Also, signs of weak manufacturing growth in China, the world’s largest importer of the commodity further weighed on the global oil market while the collapse of the third US bank since March due to rising interest rates added to the overall uncertainty surrounding the financial markets.
Despite these factors, some positive growth in the US services sector and expectations that output cuts by major producers will limit supply have led investors and analysts to buy back into the market.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, began voluntary output cuts of around 1.16 million barrels per day at the beginning of this month, and these are expected to support the market going forward into the summer peak demand period.
“It seems like OPEC+ will have pressure to finally show they can meet those production cut quotas and possibly be in a position to signal more cuts are coming,” said Edward Moya, an analyst at OANDA.
Investors are also awaiting developments from the European Central Bank, which is set to raise interest rates for the seventh meeting in a row on Thursday.
However, concerns about Chinese demand continue to weigh on the market, especially after a private sector survey showed that factory activity unexpectedly dipped in April due to softer domestic demand.