This week, Crude oil prices got stuck between a pessimistic demand outlook from the International Energy Agency and signs that OPEC+ is working hard to reduce supply.
Earlier today, in morning trade in Asia, the benchmarks reached the highest in three months, Bloomberg reported, buoyed by a cheaper greenback and a good trading day on Thursday for U.S. equities.
Support for prices also came earlier this week from OPEC, whose combined output in January declined by 350,000 bpd, signaling the cartel was serious about the output cuts this time, even if there were still laggards among its members.
Separately, Saudi Arabia’s Aramco canceled this week the bidding process for a $10-billion expansion project at its largest offshore oil field, Safaniya. The news comes less than a month after Aramco said it was ordered by Riyadh to suspend work on its oil production capacity expansion. Energy minister Abdulaziz bin Salman motivated the decision with the energy transition.
On the bearish side, pressure came from the Fed, which indicated it had no immediate plans to start raising interest rates, and most recently from U.S. retail sales data. The January report, out earlier this week, revealed a 0.8% contraction in retail sales, while analysts had expected a much more modest one, at 0.1%.
The data suggested the U.S. economy still had a way to go before it made a full recovery, with negative demand implications for oil demand. Those were reinforced by the EIA’s latest weekly petroleum report that showed a 12-million-barrel weekly build in crude oil inventories.
On the other hand, as Reuters noted in a report from earlier today, the weaker than expected retail sales might change the Fed’s mind about rate cuts, which would be positive for oil demand.
Geopolitical risk remains among the factors motivating oil trading decisions but it has been largely offset this week by the bearish developments in the U.S.
By Irina Slav for Oilprice.com
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