Oil set for second weekly drop as recession fears, rates cloud outlook

SIGNAL HILL CALIFORNIA – FEBRUARY 9: An oil pumpjack sits idle near homes in Signal Hill on February 9, 2023.

The oil price was little changed on the Friday, but is set to drop for the second week in a row as the disappointing economic data out of the U.S. - the world's largest crude consumer - and the uncertainty over future interest rate increases raises concerns about fuel demand.

Brent crude futures

As of 0156 GMT, June barrels were trading at $78.53, up 16 cents or 0.2%. This contract expires Friday, and the more actively traded July contract is up 21 cents or 0.3% to 78.43 per barrel.

U.S. West Texas Intermediate crude (WTI)

The price of a barrel was up by 23 cents or 0.3% at $74.99.

Brent will decline by 3.8% this week and has fallen 9.1% over the last two weeks. WTI will drop by 3.8% this coming week, bringing its two-week fall to 9.4%.

U.S. economic development

Slower than expected

Data showed that although unemployment claims declined in the week ending on April 22, they rose in the first three months.

Investors are concerned that possible interest rate increases by central banks fighting inflation could slow down economic growth in the United States and Britain, and reduce energy demand throughout the European Union and United States.

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U.S. Federal Reserve

All three central banks are expected to increase rates during their next meetings. The Fed will meet on May 2-3.

Satoru Yushida is a commodity analyst with Rakuten Securities. He said that oil investors are eagerly awaiting the Fed's and other central banks' moves next week in order to determine the direction of the interest rates as well as the global economy.

The market is calm due to a mix of bullish and negative economic data, and a recovery on the global equity markets has given investors a sense of relief," said a commentator in reference to oil's modest rebound on Thursday.

U.S. stocks

Close higher

Investors were able to ignore signs of economic weakness on Thursday thanks to strong earnings.

Russian Vice Prime Minister Vladimir Putin has emphasized the importance of supply.

Alexander Novak said

On Thursday, the OPEC+ Group said that despite lower than expected Chinese demand there was no need to further cut output. However, the organization could always adjust its policy if needed.

The Organization of the Petroleum Exporting Countries (OPEC+) and its allies, including Russia, announced this month a combined reduction in output of approximately 1,16 million barrels of oil per day. This pushed up the price of crude oil.

The market has rallied after the OPEC+ news, but it's weakened since then due to fears about a recession and its impact on demand.

Energy Information Administration data released earlier this week showed that U.S. crude and gasoline inventories dropped more than expected in the last week as the demand for motor fuel increased ahead of summer's peak driving season.

Oil prices are expected to rise in the next week, he predicted, given a Russian warning that OPEC+ can adjust its policy if necessary and a larger-than-expected decline in U.S. inventories before the driving season.