Oil prices eased on Friday, with major benchmarks headed for their second straight week of losses, as the market awaited further signs of fuel demand recovery in China to offset looming slumps in other major economies.
Brent crude futures fell 34 cents, or 0.4%, to US$81.83 a barrel, while U.S. West Texas Intermediate (WTI) crude futures slid 37 cents, or 0.5%, to US$75.51. Both contracts have dropped by more than 5% so far this week, with mixed signals on fuel demand recovery in China- the world’s top oil importer, keeping a lid on prices.
Analysts pointed to a sharp jump in traffic in China’s 15 largest cities following the Lunar New Year holiday, but also noted that Chinese traders have been “relatively absent”.
The prospect of an economic rebound in China after COVID-19 curbs eased has buoyed the oil market so far this year, along with a weaker dollar that makes the commodity cheaper for those holding other currencies.
The dollar has fallen because aggressive interest rate hikes by the U.S. Federal Reserve are no longer expected. Central banks for other major economies, though, are continuing with bigger rate increases even as inflation has eased.
While supported by a weaker greenback, oil’s gains have been limited by the prospect of slow growth in the United States, the world’s biggest oil consumer, and recessions in places including Britain, Europe, Japan, and Canada.
“The crude demand outlook needs a clear sign that China’s reopening will be smooth, and that the U.S. economic growth momentum does not deteriorate quickly,” OANDA analyst Edward Moya said in a note.
The U.S. Central Bank scaled back to a milder rate increase after a year of larger hikes, but policymakers also projected that “ongoing increases” in borrowing costs would be needed.
Upcoming Interest Rate Hikes
Upcoming interest rate hikes in 2023 are likely to weigh on the U.S. and European economies, boosting fears of an economic slowdown highly likely to dent global crude oil demand, said Priyanka Sachdeva, market analyst at Phillip Nova.
Investors are also eyeing developments on the 5th February European Union (EU) ban on Russian refined products as the EU countries will seek a deal on Friday to set price caps for Russian oil products.
In December 2022, EU countries agreed to set a price cap on Russian oil at $60 per barrel. The price cap applies to seaborne crude oil, petroleum oils, and oils obtained from bituminous minerals which originate in or are exported from Russia.
The cap came on top of the EU import ban on Russian seaborne crude oil and petroleum products, and the corresponding bans of other G7 partners. This decision will limit price surges driven by extraordinary market conditions and drastically reduce the revenues Russia has been earning from oil since it unleashed its illegal war of aggression against Ukraine. It will also serve to stabilise global energy prices while mitigating adverse consequences on energy supply to third countries.
The level of the cap was established in close cooperation with the Price Cap Coalition and applies from 5 December 2022. The cap is adjustable over time and the current value may be amended in the future to reflect market developments and technical changes.
The EU has prohibited EU vessels from transporting Russian crude oil (from 5 December 2022) and petroleum products (from 5 February 2023) to third countries. It has also prohibited the related provision of technical assistance, brokering services or financing, or financial assistance. This ban doesn’t apply if crude oil or petroleum products are purchased at or below the oil price cap.
READ ALSO: Education Minister To Appear Before Parliament Over SHS Placement Scandal On February 11
