Oil prices experienced relatively minor fluctuations on Friday but were poised to register a third consecutive weekly decline, as investors grappled with a confluence of factors influencing market sentiment. At the forefront of these considerations were the assurances from the Organization of the Petroleum Exporting Countries and its allies (OPEC+) regarding production levels, juxtaposed against the backdrop of the latest U.S. employment data, which tempered expectations of imminent interest rate cuts by the Federal Reserve.
As trading reached 1:32 p.m. EDT (GMT 1732), Brent crude futures edged down by a mere 8 cents to $79.79 a barrel, while U.S. West Texas Intermediate (WTI) crude futures recorded a modest gain of 13 cents, reaching $75.68. Despite these minor movements, the market sentiment remained subdued, with oil prices set for a potential third consecutive weekly decline.
The unexpected surge in U.S. jobs growth reported for May caught many by surprise, exceeding economists’ forecasts by a significant margin. This robust performance in the labor market suggested continued economic strength, potentially delaying the Federal Reserve’s anticipated interest rate cuts until at least September. The European Central Bank’s recent decision to proceed with its first interest rate cut since 2019, despite concerns about inflation, further underscored the likelihood of a delayed response from the Fed.
Andrew Lipow, president of Lipow Oil Associates, emphasized the market’s reaction to the jobs report, noting that the prospect of higher interest rates tends to dampen enthusiasm in the oil market. This sentiment was compounded by the rally in the dollar following the release of the employment data, with the currency strengthening by 0.8% to reach a more than one-week high.
Despite the overarching concerns about demand and interest rates, oil prices found support from OPEC+ members, particularly Saudi Arabia and Russia, who signaled their readiness to pause or even reverse oil output increases. However, lingering apprehensions about weakening demand persisted, with crude oil on track for its third consecutive weekly loss. Brent crude was anticipated to decline by approximately 2.2% for the week, while WTI was expected to register a 1.7% loss.
Earlier in the week, oil prices experienced downward pressure amid concerns about rising supply, exacerbated by the perceived outcome of the OPEC+ meeting held on Sunday. Furthermore, in the United States, the energy sector saw a reduction in the number of active oil and natural gas rigs to the lowest level since January 2022, according to the latest report from Baker Hughes.
Meanwhile, in China, despite an uptick in exports for the second consecutive month in May, crude oil imports declined, signaling potential demand challenges in the world’s largest crude oil buyer. Additionally, disruptions at the Novoshakhtinsk oil refinery in Russia’s southern Rostov region due to a fire following a drone attack further contributed to supply concerns.
In summary, oil markets navigated a complex landscape shaped by evolving demand dynamics, supply considerations, and macroeconomic trends. Each of these factors contributed to the nuanced sentiment observed during Friday’s trading session, reflecting the intricacies of the global oil market ecosystem.