May 17 2024: Oil prices saw marginal gains on Friday, poised for a positive week amid optimism fueled by milder U.S. inflation, decreasing U.S. inventories, and increased Chinese stimulus, all contributing to hopes of a rebound in demand.
By 08:30 ET (12:30 GMT), Brent oil futures edged up 0.1% to $83.29 a barrel, while West Texas Intermediate crude futures also increased by 0.1% to $79.28 a barrel.
Likely Weekly Gains
Both oil contracts are expected to conclude the week with gains ranging between 0.5% and 1%, with a significant portion of these gains attributed to softer U.S. consumer inflation readings.
The April CPI data affected the dollar negatively, raising expectations that the Federal Reserve might start reducing rates as early as September, which could favor crude demand amidst looser monetary conditions.
However, this sentiment was somewhat countered by warnings from several Fed officials, indicating the need for more substantial evidence of declining inflation before considering rate cuts.
Mixed Cues in Oil Markets
Oil markets encountered mixed signals regarding demand throughout the week. A larger-than-anticipated reduction in U.S. inventories bolstered hopes for increased demand, especially with the upcoming summer travel season.
Nevertheless, the International Energy Agency slightly adjusted its annual demand forecast downward, citing uncertainties in the global economy due to persistent inflation and potentially prolonged high-interest rates.
On the other hand, the Organization of the Petroleum Exporting Countries (OPEC) maintained its 2024 demand forecast, anticipating an eventual economic recovery in China and the potential for lower interest rates later in the year.
OPEC is expected to continue its current pace of production cuts beyond June, signaling a tighter supply outlook.
China’s Influence on Oil Markets
China’s announcement of a massive $1 trillion bond issuance marked its first significant fiscal stimulus, aiming to bolster its sluggish economic recovery.
While Chinese industrial production exceeded expectations in April, indicating a steady recovery in the manufacturing sector supported by government measures, signs of weak consumption persisted. Retail sales growth fell short of expectations in April, and new home prices in China experienced the sharpest monthly decline in over nine years.
Anticipation is high for China’s upcoming decisions on benchmark lending rates, with growing expectations for a cut in the mortgage reference rate as authorities strive to stimulate the housing sector amidst economic challenges.
(Ambar Warrick contributed to this article.)
