On Friday, oil market consolidation resumed in Asian trading, with prices sliding further below 10-month high due to a combination of profit taking, dollar strength, and concerns about an economic slowdown among big customers.
Crude prices fell on Thursday, despite a favorable US inventory report and robust Chinese import data. Analysts ascribed the move to profit-taking after crude climbed more than 7% in the previous ten days. However, the dollar’s strength, which reached a near six-month high on Thursday, looked to have knocked some of the wind out of the oil rise, particularly as evidence of resilience in U.S. inflation and the labor market fanned fears about increasing interest rates in the nation.
While recent data revealed that US inventories decreased more than expected in the week ending September 1, experts questioned if robust demand would continue in the coming weeks, particularly as the travel-heavy summer season came to an end. Brent oil prices lost 0.2% to $89.61 per barrel by 01:38 GMT, while West Texas Intermediate crude futures slid 0.4% to $86.56 per barrel.
Saudi and Russian production cutbacks have placed oil on track for a weekly rise. However, both contracts were projected to rise by more than 1% this week, boosted by a tighter supply picture after major producers Saudi Arabia and Russia announced larger-than-expected production cutbacks this week.
Saudi Arabia will keep its 1 million barrels per day production cut until the end of 2023, while Russia will keep its 300,000-barrel export cut until the end of the year. The expectation of tighter supply fueled substantial increases in oil prices over the last week, as investors wagered that decreased output will help offset any headwinds from weak demand in the rest of the year.
However, traders are also questioning how much further the oil surge can last, given that demand–particularly in the United States and China–is forecast to decrease in the coming months.
While China’s oil imports increased by more than 30% in August, the country’s overall exports and imports fell significantly. China’s trade surplus decreased more than projected as well. Chinese oil imports have remained high this year, owing primarily to inventory buildup by domestic refiners. The government also increased its gasoline export limits to capitalize on rising global fuel prices, raising doubts about how big a comeback in domestic fuel consumption occurred this year. While travel has recovered in the last three months, economic activity has continued to fall.
The world’s largest oil importer’s inflation report, due on Saturday, is likely to show a slight increase in price pressures. However, price growth is anticipated to stay significantly below historical norms, indicating that the Chinese economy will remain sluggish.
Adding to fears about a global economic downturn, Japan lowered its second-quarter GDP figure on Friday, raising questions on whether an ultra-dovish Bank of Japan could continue to sustain economic growth.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.