Oil prices reached a three-week high in Asian trading on Friday, as the possibility of reduced supplies due to deeper production cuts by Saudi Arabia and Russia within the OPEC+ alliance helped counterbalance concerns about a slowing global economy.
Russian Deputy Prime Minister Alexander Novak announced on Thursday that Moscow had struck a new agreement with OPEC+ partners to further curtail oil production. Details of these production cuts will be outlined in the coming week. These additional reductions are expected to complement the existing supply cuts by Russia and Saudi Arabia, contributing to a tighter supply outlook for the remainder of the year and consequently providing support for oil prices.
This optimistic outlook enabled oil prices to overcome a series of weak economic signals from both the United States and China earlier in the week.
As of 20:27 ET (00:27 GMT), Brent oil futures remained stable at $86.81 per barrel, while West Texas Intermediate crude futures held flat at $83.62 per barrel. Both contracts posted gains of 2.9% to 5% over the course of the week, with West Texas Intermediate benefitting from a more restricted outlook for U.S. supplies. Recent data indicated a significantly larger-than-expected drawdown in U.S. inventories just ahead of the Labor Day Weekend, marking the peak of U.S. summer demand.
The weakening of the U.S. dollar, which had dropped to a three-week low earlier in the week, also contributed to the upward movement in oil prices. However, the greenback regained strength on Thursday following a stronger-than-anticipated inflation reading.
Market observers are now eagerly awaiting further signals concerning the U.S. economy and potential changes in interest rates, while keeping an eye on economic indicators from China.
Dollar Rebound Puts Pressure on Oil Ahead of Nonfarm Payrolls Data
The U.S. dollar stabilized on Friday after recovering from nearly three-week lows. This rebound came in response to personal consumption data, which showed hotter-than-expected inflation figures for July, the Federal Reserve’s preferred inflation gauge.
This data release was accompanied by weekly jobless claims figures that were softer than anticipated, indicating some resilience in the labor market ahead of the highly anticipated nonfarm payrolls data scheduled for later in the day.
Despite other economic indicators, such as the Purchasing Managers’ Index (PMI) and GDP, suggesting a cooling in the U.S. economy, the persistent high inflation and labor market strength provide further motivation for the Federal Reserve to continue raising interest rates.
Market concerns are centered around the potential negative impact of higher interest rates on economic growth this year, which could subsequently weigh on crude oil demand. This sentiment was reinforced by higher-than-expected inflation readings in the euro zone.
Additionally, lukewarm Chinese PMI data also contributed to market unease. Official data revealed that manufacturing activity in the world’s largest oil-importing nation contracted for a fifth consecutive month in August, albeit at a slower-than-expected rate.