Crude oil prices are on track for a weekly decline despite an early boost driven by recent economic data.
The rise in oil prices earlier in the week was largely due to U.S. inflation data, which reported a monthly decline for June—the first in four years. However, annual inflation rose by 3%. This monthly decline in inflation supported oil prices, with Brent crude briefly surpassing $85 per barrel. Earlier in the week, Brent had slipped below this level following China’s consumer price index (CPI) data, which showed a decline in consumer prices. Analysts viewed this as a negative indicator, suggesting weaker oil demand in the coming months.
The decrease in the monthly CPI also raised hopes for an interest rate cut, a topic that has been of significant interest to oil traders for months.
“Cooling U.S. inflation numbers may support the case for the Fed to begin its policy easing process sooner rather than later. However, it also adds to the series of downside surprises in U.S. economic data, indicating a clear weakening of the U.S. economy,” IG market strategist Yeap Jun Rong told Reuters.
Support from OPEC’s Monthly Report
Oil prices also found some support from OPEC‘s latest monthly report, which reiterated strong demand expectations for crude oil. OPEC projects a growth of approximately 2.25 million barrels per day for this year.
“Expected strong mobility and air travel in the Northern Hemisphere during the summer driving/holiday season is anticipated to bolster demand for transportation fuels and drive growth in the United States,” OPEC stated.
Production Adjustments and Future Outlook
Should these expectations materialize, OPEC might decide to roll back some of its production cuts to avoid what ING’s Warren Patterson termed a “large deficit” in his recent second-half forecast. However, if the anticipated demand does not materialize, OPEC is likely to maintain its current production controls.
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