Crude Oil Rises 1% as Reduced US Production Signals, Records Initial Weekly Decline in 8 Weeks

Crude Oil Rises 1% as Reduced US Production Signals, Records Initial Weekly Decline in 8 Weeks

19 Aug, 2023

 

Crude Oil Rises 1% as Reduced US Production Signals, Records Initial Weekly Decline in 8 Weeks

 

Oil prices saw a roughly 1% increase on Friday due to indications of a slowdown in U.S. oil production. However, both major crude benchmarks also wrapped up their lengthiest weekly streak of gains in 2023, as concerns about global demand growth intensified.

West Texas Intermediate (WTI) crude futures climbed by 86 cents, equivalent to 1.1%, ultimately settling at $81.25 per barrel. Similarly, Brent crude futures experienced a 68-cent, or 0.8%, rise to settle at $84.80 per barrel.

Both benchmarks experienced upward momentum on Friday, driven by industry data revealing a sixth consecutive week of decline in the U.S. oil and natural gas rig count. This count serves as an early signal of future production levels. A decline in U.S. production could potentially worsen the projected supply constraints throughout the remainder of the year.

These concerns were amplified by production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, which contributed to seven consecutive weeks of oil price gains since June. Over the seven-week period ending on August 11, Brent crude gained approximately 18%, while WTI saw a 20% increase.

However, during the current week, oil prices experienced a decline of around 2% compared to the previous week. This was attributed to escalating worries about China's property crisis, which added to existing concerns about the nation's sluggish economic recovery and subsequently reduced investor appetite for risk across various markets.

"Current investor concerns are mainly centered around the tension between slowing global economic growth and ongoing constraints on global supplies," noted Rob Haworth, senior portfolio manager at U.S. Bank Asset Management.

Haworth predicted that prices would remain within a certain range for the time being, emphasizing that the uncertainty surrounding demand stems from worrisome data emerging from China.

Furthermore, apprehensions are growing regarding the U.S. Federal Reserve's approach to handling inflation, as there are indications that interest rates might continue to rise. Such an increase in borrowing costs could hinder economic growth, subsequently impacting the overall demand for oil.

Adding to the factors influencing oil benchmarks is the seasonal weakness in demand as the autumn season approaches. Jay Hatfield, CEO of Infrastructure Capital Management, pointed out this aspect as an additional factor contributing to the downturn in oil prices.

Hatfield expressed his anticipation that demand would remain steady in China despite its decelerating economy. He projected that oil prices would hover in the range of $75 to $90 per barrel over the upcoming months.

 

 

 

 

 


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