Oil prices rose on Friday after the US Senate passed a debt ceiling agreement in Washington, but are headed for their biggest weekly loss in a month as demand concerns persist amid higher inflation and monetary policy tightening by central banks.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.62 per cent higher at $74.74 a barrel at 12.33pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.58 per cent at $70.51 a barrel.
US senators have passed a debt ceiling agreement forged by President Joe Biden and House Speaker Kevin McCarthy as the June 5 deadline for a destabilising US default approaches.
The Senate voted 63-36 to approve the bill that was passed on Wednesday by the House of Representatives.
A US default would have sent shock waves across the global financial system and probably triggered a recession, severely denting crude demand.
“Oil prices have rebounded off their lows … having at one stage come very close to the bottom seen in March and May,” said Craig Erlam, a senior market analyst at Oanda.
WTI prices fell by about 2 per cent on Wednesday as an unexpected increase in US crude stocks – an indicator of crude demand – stoked concerns about excess supply.
Commercial crude stocks in the world’s largest economy increased by 4.5 million barrels last week, the latest Energy Information Administration data shows.
“It's a very interesting development coming just before Opec+ meets this weekend and following warnings from the Saudi Energy Minister to 'watch out',” Mr Erlam said.
According to Edward Bell, senior director of market economics at Emirates NBD, Opec+ is setting the stage for “a potential showdown on output levels, with the potential of another cut rising up the ranks of probabilities”.
“Much softer time spreads may help to encourage a wider cut among members,” he said in a note.
At an event in Qatar recently, Saudi Arabia's Energy Minister told oil market short sellers to “watch out”, which was seen by some traders as a signal for further output reductions.
“I keep advising them that they will be 'ouching'. They did 'ouch' in April,” Prince Abdulaziz bin Salman said at the time.
Short sellers strategically position themselves to make a profit if prices decline. They achieve this by selling borrowed assets in the hope of repurchasing them at a lower price.
However, if oil prices rally on an unexpected Opec+ cut, they face a loss.
On April 2, some Opec+ members – Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria – announced voluntary production cuts of 1.16 million bpd.
Russia, which is under western sanctions over its invasion of Ukraine, also said the 500,000 bpd cut it is making from March to June would continue until the end of the year.
“Of course, oil traders can argue that the Chinese economic rebound has stalled, manufacturing activity around the world is struggling, Germany is in recession and the US may be headed for one,” Mr Erlam said.
“The questions now are: Will Opec+ see it that way and could Russia be convinced to cut again? If not, Brent crude may well test those recent lows more forcefully.”
Germany's economy has fallen into recession with the economy shrinking by 0.3 per cent between January and March as high prices held back consumer spending.
It followed a 0.5 per cent contraction in the last quarter of 2022, according to official data.
“Crude prices were initially lower after a surprising large build was followed by a global round of disappointing manufacturing data that did not do any favours for the demand outlook,” said Ed Moya, a senior market analyst at Oanda.
“If prices remain significantly under pressure going into the weekend, the Saudis might try convincing the Russians to take part in some type of modest production cut.”
Brent has lost more than 10 per cent of its value this year as weak economic growth in the world's top oil-consuming nations – the US and China – dampens the outlook for fuel demand.
（Picture: Veer）
