Oil prices maintained their three-week highs in Asian trading on Friday, with the potential for reduced supplies, stemming from deeper production cuts by Saudi Arabia and Russia, largely mitigating concerns surrounding a slowdown in global economic growth.
Russian Deputy Prime Minister Alexander Novak announced on Thursday that Moscow had struck a new agreement with its counterparts within the Organization of Petroleum Exporting Countries and its allies (OPEC+), intending to further reduce oil supplies. Detailed plans for production cuts are expected to be outlined next week. These additional cuts are likely to complement the ongoing supply reductions initiated by Russia and Saudi Arabia, leading to a more constrained supply outlook for the remainder of the year and, consequently, bolstering oil prices. This perspective helped oil markets overcome a series of weak economic indicators emerging from both the U.S. and China earlier in the week.
In the current market scenario, Brent oil futures steadied at $86.81 per barrel, while West Texas Intermediate crude futures remained unchanged at $83.62 per barrel as of 20:27 ET (00:27 GMT). Both contracts posted gains ranging from 2.9% to 5% over the course of the week. WTI, in particular, benefited from a more constrained outlook for U.S. supplies, with data this week revealing a notably larger-than-anticipated drawdown in U.S. inventories just before the Labor Day Weekend, a period known for peak summer demand in the United States.
Furthermore, the relative weakness of the U.S. dollar, which had earlier fallen to a three-week low during the week, contributed to the upward momentum in oil prices. However, the greenback regained strength on Thursday after a stronger-than-expected inflation report.
Market participants are now awaiting further signals regarding the U.S. economy and potential changes in interest rates, while closely monitoring economic indicators from China.
Dollar Recovery Exerts Pressure on Oil Ahead of Nonfarm Payrolls Data
The U.S. dollar found stability on Friday, recovering from near three-week lows. This rebound followed the release of personal consumption data, the Federal Reserve’s preferred inflation gauge, which reported higher-than-expected figures for July. The data was accompanied by weekly jobless claims that were softer than anticipated, signaling resilience in the labor market just ahead of the release of key nonfarm payrolls data later in the day.
Although various economic indicators, such as the Purchasing Managers’ Index (PMI) and Gross Domestic Product (GDP), hinted at a slowdown in the world’s largest economy, persistent inflation and labor market strength provide the Federal Reserve with stronger reasons to continue raising interest rates. However, market concerns persist that higher interest rates could potentially dampen economic growth this year, subsequently impacting crude oil demand. Additionally, hotter-than-expected inflation readings in the eurozone have further fueled these apprehensions.
Furthermore, the sentiment was weighed down by mediocre Chinese PMI data, as official reports indicated that manufacturing activity in the world’s largest oil-importing nation had contracted for the fifth consecutive month in August, albeit at a slower pace than initially expected.
