Oil prices declined on Friday as uncertainty surrounding global growth overshadowed expectations of a tighter market in the second half of the year.
Some of the challenges weighing on global oil outlook is the Bank of England’s plan to raise interest rates by a quarter of a percentage point next week and the European Central Bank’s recent move to lift rates to a 22-year high.
Also, the U.S. Federal Reserve has signaled a potential half-percentage-point increase by the year’s end.
“Concerns about demand continue to predominate on the oil market,” noted Commerzbank analysts in a report on Friday. “It seems that the market needs more ‘hard’ facts to confirm any tight supply on the market.”
Brent crude, a global benchmark, fell by 49 cents or 0.7% to $75.18 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped 63 cents or 0.9% to $69.99.
The prospect of rising interest rates raises concerns about slowing economic growth, which could subsequently reduce oil demand. However, despite the prevailing market worries, both oil benchmarks were still heading for a small weekly gain following declines in the past two weeks.
The hope of increasing Chinese demand provided some support to oil prices, leading to a 3% gain on Thursday.
China, the world’s largest oil importer, saw its refinery throughput reach the second-highest total on record in May. Additionally, the CEO of Kuwait Petroleum Corp expects Chinese demand to continue climbing during the second half of the year.
While Chinese demand rises, OPEC and its allies implemented voluntary crude output cuts in May, which have helped curb supply. Further, Saudi Arabia announced an additional cut to take effect in July, demonstrating the concerted effort to stabilize the oil market.
In a bit of relief for oil prices, the weaker U.S. dollar played a supportive role. The dollar fell to a one-month low against a basket of currencies on Thursday. A weaker dollar makes oil cheaper for buyers with other currencies, potentially boosting demand.
The delicate balance between economic concerns, interest rate hikes, Chinese demand, and supply cuts will continue to shape the trajectory of oil prices in the coming weeks. Market participants eagerly await further developments and hard data to provide clarity and confirm any potential tightening of supply in the oil market.
