Oil prices are likely to end the winning streak on Friday as concerns over slowing China’s economic growth and concerns about the possibility of further US rate hikes trump supply shrinkage.
Brent crude was up 8 cents, or 0.1%, at 0611 GMT to $84.12 a barrel, while West Texas Intermediate crude (WTI) rose 22 cents, or 0.3%, to $80.61 a barrel.
The seven-week winning streak has been the longest for both benchmarks this year. Brent futures rose nearly 18% and WTI more than 20% in the seven weeks ended Aug. 11, hitting new highs in months before cutting some gains this week, both of which fell more than 3% this week.
The US Federal Reserve, which has been trying to keep the oil prices, which have risen sharply in recent weeks due to supply concerns, focused on controlling inflation this time with stronger-than-expected economic data.
The U.S. Department of Labor reported on Thursday that the number of Americans filing new applications for unemployment benefits fell last week, It is giving signs that the still tight job market may extend the Fed’s tightening campaign to cool the economy. These signs followed similarly optimistic economic data earlier in the week, including US retail sales, which showed the Fed could hold on to higher rates for longer.
Investors worry that higher borrowing costs could hamper economic growth and therefore reduce overall demand, including for oil.
Adding to the concerns, a recent set of economic data from China, the world’s second-largest oil consumer, highlighted a rapid loss of economic momentum since the second quarter.
The Chinese economy has stumbled in the past few months with a real estate crisis that also risks contaminating global financial markets and concerns investors. China’s Evergrande, the world’s most indebted real estate company with $340 billion, has filed for bankruptcy protection in the US.
Meanwhile, oil supply contracted by the OPEC+ cuts, and rising demand, particularly in the US due to increased travel and booming industrial activity, are supporting prices.
US oil production is offsetting some losses in production due to OPEC+ cuts, but the falling US rig count means such support is likely to be short-lived.
Data released this week also showed that US crude inventories fell by nearly 6 million barrels last week due to strong export and refining rates. The weekly supply of products, representing demand, rose to its highest level since December.
With recent economic weaknesses, China saw a rare drop in crude inventories in July and cut storage for the first time in 33 months.
Meanwhile, data in general point to a supply squeeze. Investors have begun to increase their bullish forecasts, with net long positions reaching annual highs.
