As fears Of US Recession Ease; Demand Worries Subside, Oil Prices Rise Over 2%

As fears Of US Recession Ease & Demand Worries Subside, Oil Prices Rise Over 2%

The price of Brent crude oil increased $1.57, or 2.1%, to $76.87 a barrel at 11:19 a.m. EDT (1519 GMT). Additionally, US West Texas Intermediate (WTI) crude rose $2.45 to $73.07, a gain of 2.4%. Although the US labour market is strong, higher interest rates could be kept by the Federal Reserve.

In response to the recent rebound in Brent, US crude prices have dropped by 7.1% and by 5.3%, respectively. The two benchmarks have been falling consecutively for the first time since over six months ago. After crucial job data eased fears of an impending recession last Friday, oil’s rebound on Monday followed the rebound on Wall Street of energy stocks. 

Since three regional central banks collapsed recently, the market has been plagued with banking concerns. Despite a rebound in regional bank shares on Friday, shares of regional banks on Monday yielded less than Friday’s gain.

Unlike earlier in the year, the market is no longer concerned about a banking crisis leading to a recession and hurting demand. According to the chairman of Saxo Bank’s commodity strategy department, a recent drop in oil looks excessive. In an oversold market, a short seller seeking cover is likely due to Brent finding support before March’s low. There may have been an overdone sell-off in the recent months.

According to analysts on Saturday, there was no need to worry about near-term demand and elevated supplies. Its next meeting will occur on June 4, when OPEC+ and its allies begin voluntary output reductions.

Awaiting Wednesday’s consumer price inflation figures, likely to influence the Fed’s stance on future interest rate decisions, are April’s US consumer price inflation figures. This Thursday, OPEC will provide a monthly report on its oil market, highlighting the outlook for supply and demand.

Chinese Import Data And Outlook For The US Economy

A regional banking crisis coupled with weaker-than-expected demand in China has resulted in additional fears of an economic slowdown, especially given Congress’ inaction on debt ceilings. In response to US hopes that its largest oil consumer will avoid recession and to traders’ view that crude’s three-week slide has been overdone, both benchmarks advanced more than 2% on Monday.

Even so, Chinese imports declined sharply in April, while exports rose only slowly, signalling weak domestic demand that further burdens a global economy already in decline. We are awaiting confirmation that the Asian market is unaffected by the price hike in crude oil, which has been range-bound between $70 and $82.

During the past week, the markets have closely watched US President Joe Biden’s comments on raising the $31.4 trillion US debt ceiling. Fear grew that Congress would fail to act within three weeks, and the country would experience an unprecedented default.

A Federal Reserve meeting last week raised interest rates and dropped its guidance for future hikes. A report released on Monday showed that US consumers expect slightly lower inflation in the coming year. The market is cautious today as it awaits inflation data.

A lead energy analyst said the market is experiencing low volumes since net long positions have fallen sharply over the last two weeks. In Alberta, many oil producers have shut down their operations due to wildfires, which account for nearly one-third of Canadian oil production. In July, Bank of America cut its forecast for average Brent prices for 2023 from $88, citing macroeconomic trends and tighter credit conditions.

Proofread & Published by Naveenika Chauhan