Oil prices are set to record a fifth consecutive week of gains, as investors remain optimistic about strong demand and supply cuts. This positive sentiment is also reflected in the wider financial markets, where risk appetite has been fueled by expectations of central banks like the Fed and European Central Bank ending their policy tightening campaigns. This, in turn, boosts the outlook for global growth and energy demand.
The recent supply cuts announced by the OPEC+ alliance have further bolstered both oil benchmarks. As a result, they are on track for a 3.6% weekly increase, marking a fifth straight week of gains. By 0918 GMT, Brent crude slipped 28 cents to $83.96 a barrel, while U.S. West Texas Intermediate (WTI) crude dipped 18 cents to $79.91 a barrel.
On Thursday, bullish demand expectations received a boost when the U.S. second quarter gross domestic product grew at a forecast-beating 2.4%. This supports Federal Reserve Chairman Jerome Powell’s view that the economy can achieve a “soft landing.” Analysts are increasingly confident that the United States will avoid a recession and that peak rates are getting closer.
Despite indicators pointing to renewed weakness in the euro zone, fresh data released on Friday showed unexpected resilience in the second quarter for some of the region’s top economies. However, manufacturing continues to ail and services are slowing down. In China, policymakers have pledged to implement stimulus measures to invigorate the post-COVID recovery after the country’s second-largest economy grew at a frail pace in the second quarter.
According to PVM analyst Tamas Varga, the combination of a positive economic backdrop, healthy demand, and production cuts from the OPEC+ alliance has pushed Brent to its highest levels since April. Varga believes it would be risky to bet against Brent oil revisiting the $89.09 per barrel mark set in January.
In conclusion, oil prices are on track for a fifth straight week of gains, driven by optimistic expectations of healthy demand and supply cuts. The positive sentiment in financial markets is supported by the belief that central banks are nearing the end of their policy tightening campaigns. Additionally, recent economic data from the U.S. and euro zone, along with stimulus measures in China, contribute to the positive outlook for oil prices.
