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Oil Prices Set For Another Weekly Loss As Sentiment Shifts

  • Oil prices started the week by rallying higher on expectations that Chinese demand would climb and the Fed might halt its interest rate hikes.
  • Both WTI and Brent are now set for another weekly loss due to U.S. inventory data and rising doubts about Chinese demand.
  • In the medium- and long-term, analysts still expect oil markets to tighten and prices to climb.
Oil prices

After rallying at the start of the week, oil prices have offset their gains and are about to end the week with another loss as U.S. inventory data and rising doubts about the speed of China’s economic recovery shift sentiment.

According to Quantum Market Intelligence, the weekly drop is set to be about 5 percent.

“The crude demand outlook needs a clear sign that China’s reopening will be smooth and that the US economic growth momentum does not deteriorate quickly,” Oanda senior analyst Ed Moya told the news outlet.

Such a clear sign about China’s reopening is yet to come, while the latest economic data from the U.S. is not conducive to much optimism: according to the latest reading of the purchasing managers’ index by the Institute for Supply Management, U.S. manufacturing is in recession. The index fell to 47.4 in January from 48.4 in December. It has declined in 12 of the last 15 months.

Central banks added to the bearish mood this week, with the Fed announcing another rate hike, although smaller than the previous ones, and indicating it was not done with hikes. The ECB and the Bank of England also raised rates this week.

Meanwhile, U.S. crude oil inventories have been rising for four weeks in a row, with two of the builds rather substantial, which put a ceiling on prices. And these builds have coincided with the rise of doubts about the pace of China’s recovery, Bloomberg noted in a report, quoting an ING analyst.

“Large US inventory builds this week have weighed on the market, while there is still little clarity on how strong a demand recovery we could see from China,” Warren Patterson, head of commodities strategy at the Dutch bank, said. “However, we still hold onto our constructive medium-term outlook for the market with the expectation of a tightening in the oil balance.”

By Irina Slav for Oilprice.com

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