Oil prices fell more than a dollar a barrel on Friday for the second week in a row, as disappointing Chinese data raised doubts about demand growth after Saudi Arabia’s decision to cut output over the weekend.
Brent crude futures were down $1.17, or 1.5%, at $74.79 a barrel, while West Texas Intermediate (WTI) crude fell $1.12, or 1.6%, to $70.17 a barrel.
Both benchmarks lost more than $3 on Thursday after a media report that the US-Iran nuclear deal is imminent and will increase supply. Prices curtailed their losses after both countries denied the report, ending at about a dollar a barrel. These price movements show how fragile oil is.
The Saudi rebate pushed prices up slightly, but then chatter about the potential return of Iranian oil led to a massive drop. Long-term investors will likely hold off until declines in larger oil stocks become visible.
Oil prices had soared earlier in the week, buoyed by Saudi Arabia’s pledge over the weekend to cut more output on top of the cuts agreed earlier with the Organization of the Petroleum Exporting Countries and its allies.
However, the increase in US fuel stocks and weak Chinese export data put the markets under pressure.
As summer moves into the Northern Hemisphere driving season, demand will be a key factor in determining whether limited stocks should drive prices up or weak demand should drive prices down.
Chinese factory door prices recorded the fastest decline in the last 7 years. China’s factory door prices fell at the fastest pace in seven years in May, beyond forecasts, as falling demand put pressure on slowing manufacturing and uncertainty over the fragile economic recovery.
The focus is shifting to US Fed policy, and this could determine the Saudis’ next steps. Some analysts expect oil prices to rise if the US Federal Reserve stops raising interest rates at its meeting on June 13-14. Analysts said the Fed’s decision could also affect Saudi Arabia’s next move.
The important thing is that despite all these changes in production, oil remains below $80, disappointing the Saudis without a doubt. What happens next may depend on inflation data and interest rate decisions in the coming weeks.
