Oil prices began the final trading of the week with a profit-taking decline, but rebounded to maintain their highest levels in 10 months. Oil’s rise comes despite the strength of the US dollar index, which is close to breaching the 105 levels.
Oil continued to rise today, driven by a positive report on US inventories and strong Chinese import numbers. The price of crude oil rose by more than 7% in the past ten sessions.
But the strength of the dollar, which jumped to its highest level in nearly six months on Thursday, appears to have taken some of the wind out of crude oil’s rally, especially as signs of resilience in U.S. inflation and the labor market have fueled concerns about rising interest rates in the country.
While recent data also showed that US inventories shrank more than expected in the week ending September 1, analysts wondered whether strong demand would continue in the coming weeks, especially with the travel-heavy summer season approaching.
Crude oil contracts are now rising at 7 p.m. by 0.8% to $87.56 per barrel, while Brent oil prices rise above $90 levels to record $90.67 per barrel, an increase of 0.83%.
Saudi and Russian supply cuts put crude on track for weekly gains
But both contracts are still on track for gains of more than 1% each this week, supported by expectations of tighter supplies after major producers Saudi Arabia and Russia announced deeper-than-expected production cuts this week.
Saudi Arabia will maintain its production cut by 1 million barrels per day until the end of 2023, while Russia will also keep its exports reduced by 300,000 barrels until the end of the year.
The prospect of tight supplies sparked strong gains in oil prices over the past week, with markets betting that lower production would help mitigate any headwinds from slowing demand in the remainder of the year.
But traders are now wondering how far oil’s rally can continue, given that demand – especially in the United States and China – is expected to decline in the coming months.
While China’s oil imports jumped more than 30% in August, the country’s total exports and imports still declined significantly during the month. China’s trade surplus also contracted more than expected.
Chinese oil imports have remained high this year, largely due to increased inventories at local refineries. The country also boosted its fuel export quotas to take advantage of higher global fuel prices, raising questions about how strong the recovery in domestic fuel consumption will be this year. While travel has rebounded over the past three months, economic activity has remained on a downward trend.
Inflation data from the world’s largest oil importer, due on Saturday, is expected to show some rise in price pressures. But price growth is expected to remain well below historical averages, indicating continued weakness in the Chinese economy.
Adding to concerns about a global economic slowdown, Japan also lowered its second-quarter GDP reading on Friday, casting doubt on whether the ultra-loose Bank of Japan can continue to boost economic growth.
2023-09-09 14:25:50
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