Oil rises 1% to hit 1-week high on rising demand optimism in China, US; Brent nears $84/bbl
- Brent futures last rose 40 cents, or 0.5 per cent, to $83.98 a barrel, while US West Texas Intermediate crude rose 46 cents, or 0.6 per cent, to $79.45. That put both benchmarks on track for their highest closes since April 30.
Crude oil prices rose about one per cent to a one-week high on Thursday, May 9 after economic data from China and the US indicated that demand in the world's two biggest crude-consuming nations could climb higher. The rebound comes ahead of the output policy decision by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) scheduled for June 1, 2024.
Brent futures rose 40 cents, or 0.5 per cent, to $83.98 a barrel, while US West Texas Intermediate crude rose 46 cents, or 0.6 per cent, to $79.45. That put both benchmarks on track for their highest closes since April 30. Coming to domestic prices, crude oil futures last traded 0.05 per cent lower at ₹6,603 per barrel after hitting a high of ₹6,675 per barrel on the multi commodity exchange (MCX).
What's working for crude oil prices?
-In China, crude oil imports rose on the previous year in April, and exports and imports returned to growth last month, signalling an encouraging improvement in demand at home and overseas as Beijing navigates numerous challenges in an effort to shore up a shaky economy. Analysts said that the improved China trade balance data added to the upside momentum for crude oil prices.
-In the US, the number new claims for unemployment benefits rose last week to the highest level in more than eight months, further evidence that the labor market was cooling. Analysts projected that ebbing labor market momentum puts two interest rate cuts from the Us Federal Reserve this year back on the table.
-Lower rates would reduce borrowing costs and could spur economic growth and demand for oil. Meanwhile, the Bank of England took another step towards lowering interest rates, as a second official backed a cut and Governor Andrew Bailey said he was "optimistic that things are moving in the right direction".
-In the Middle East, Israeli forces massed tanks and opened fire close to built-up areas of Rafah on Thursday, residents said, after US President Joe Biden vowed to withhold weapons from Israel if its forces launch a major invasion of the southern Gaza city.
-In response, the leader of the Houthis in Yemen said the Iran-backed group, which has already disrupted the movement of ships through the Red Sea, would target ships of any company related to supplying or transporting goods to Israel regardless of their destination.
Also Read: BoE holds key interest rates at 16-year high-mark of 5.25%, moves closer to first cut since 2020
Where are prices headed?
‘’WTI Crude oil futures edged higher after the EIA inventory data showed a drop in US crude stocks. Crude oil inventories in US fell by 1.361 million barrels during the previous week, while gasoline and distillate stocks edged higher,'' said Kaynat Chainwala, Senior Manager-Commodity Research, Kotak Securities.
US gasoline and diesel demand are at their weakest seasonal level since the 2020 coronavirus pandemic, pulling refiner’s margins for making the products to multi-month lows. This comes at the onset of the summer driving season in the US, a peak demand period for gasoline, according to the analyst.
‘’Recovery in the dollar index and waning hopes of Fed rate cuts are restricting gains of crude oil. Crude oil is having support at $78.20–77.50 and resistance is at $79.90-80.60. In INR crude oil has support at ₹6,500-6,420 while resistance at ₹6,640-6,720,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
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