Oil prices could find themselves in a tug-of-war this week between lackluster momentum in the US economy, Chinese demand and an imminent loss for Russian oil, leaving analysts questioning whether $100 crude is still on the cards.
Crude oil prices headed for a second straight weekly loss on Friday, largely in line with US data. A lower-than-expected fourth-quarter gross domestic product, hints of a possible higher rate hike by the US Federal Reserve and bloated crude oil inventories created headwinds for the commodity market.
Analysts at London-based oil brokerage PVM said oil prices could be helped by falling crude stocks in the United States, which they say is far from imminent. Meanwhile, the Oil Price Information Service said demand for refined petroleum products in the US economy is low enough to herald a possible recession.
The amount of total refined products launched in the four weeks ended Feb. 17, an indicator of demand, fell 8.4 percent from the same period last year. Commercial crude inventories, meanwhile, are 9 percent above the five-year average for this time of year.
Vandana Hari, founder and CEO of Vanda Insights in Singapore, said US economic news as well as bets on future Federal Reserve monetary policy are “steady in the driver’s seat for oil”.
US economic growth in the fourth quarter was a revised 2.7 percent, lower than market expectations, and consumer prices for goods and services rose to 5.4 percent last month from 5.3 percent in December, showing that inflation will remain stuck.
President Joe Biden said on Friday that efforts to control inflation are working at the consumer level, adding that the “battle is not over yet.”
“We must finish the work in transitioning to stable and steady growth that benefits all Americans while laying the foundation for strong and shared growth for years to come,” he said.
Next week, data on durable goods orders and consumer confidence should provide clues as to whether the US economy, the world’s largest, is indeed headed for recession, OPIS suggested, the latest data show.
However, oil prices were range-bound last week, with West Texas Intermediate, the US benchmark for oil prices, stuck in the mid-$75 per barrel range.
“While oil markets are relatively stable, the forces that keep them there are not,” said Paul Hickin, the London-based editor-in-chief of the Petroleum Economist. “US inflation and ultimately monetary policy have anchored demand and price expectations as the market continues its waiting game for the proverbial wildcards of Chinese demand and Russian supply.”
All three factors are likely to dominate the energy landscape for some time to come, he added.
The market is still looking for concrete signs that China’s economy is recovering after being stifled under draconian measures to combat the pandemic, Vanda Insights’ Hari added. So far, she said, China appears to be in a bit of a holding pattern, which could support the current range-bound trend.
In Russia, oil prices could be hovering around the promised 500,000 bpd production cut in March, but that could already be factored into the equation.
“In terms of oil fundamentals, all eyes will be on tanker trackers and how the promised production cut in Russia is dragging down exports and whether China’s reopening will support Chinese crude imports,” said Giovanni Staunovo, a commodities analyst at Swiss investment bank UBS .
UBS last week added its name to the growing list of companies that cut long-term forecasts for oil prices. Compared to Goldman Sachs, which cut its average for Brent to $92 a barrel from $98, UBS was bullish and lowered its forecast citing easing supply-side pressures, though it still expects Brent to hit 100 this summer USD will reach.
Brent has a premium of around $5 per barrel over WTI.
On trends in general, a recent research note from PVM adds that “oil bulls are losing love of the oil market.”
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