The consolidation in oil markets persisted in Asian trade on Friday, with prices edging further away from the recent 10-month highs. A combination of profit-taking, strength in the U.S. dollar, and concerns about a slowdown in major consumer economies weighed on crude prices.
Crude prices retraced on Thursday, reversing gains despite a positive U.S. inventory report and robust Chinese import figures. Analysts attributed this move to profit-taking, following a rally of over 7% in the past 10 sessions.
The strength of the U.S. dollar, which reached nearly a six-month peak on Thursday, also appeared to temper the crude rally, especially in light of resilient U.S. inflation and labor market data that fueled concerns about rising interest rates.
Although recent data showed that U.S. inventories shrank more than expected in the week ending September 1, some analysts questioned whether strong demand would persist in the coming weeks, particularly as the travel-intensive summer season concludes.
In the latest developments, Brent oil futures declined by 0.2% to reach $89.61 per barrel, while West Texas Intermediate crude futures slipped by 0.4% to $86.56 per barrel as of 21:38 ET (01:38 GMT).
Despite the recent decline, both contracts were still poised to register weekly gains of over 1%, buoyed by a more constrained supply outlook. Major producers Saudi Arabia and Russia had signaled larger-than-expected production cuts during the week. Saudi Arabia committed to maintaining its 1 million barrel per day production cut until the end of 2023, while Russia announced its intention to maintain its 300,000 barrel export reduction through the end of this year.
This prospect of tighter supplies had propelled oil prices significantly higher in recent weeks, with markets anticipating that reduced production would help mitigate headwinds from sluggish demand in the remaining months of the year.
However, traders are now raising questions about the sustainability of the oil rally, given the anticipated cooling of demand, particularly in the U.S. and China, in the coming months.
China’s oil imports surged by over 30% in August, but overall exports and imports in the country still experienced substantial declines during the same month. China’s trade surplus also contracted more than expected.
Chinese oil imports have remained elevated this year, primarily due to inventory buildup by local refiners. The country also increased its fuel export quotas to capitalize on higher global fuel prices, raising doubts about the strength of the rebound in local fuel consumption. While travel rebounded over the past three months, economic activity has continued on a downward trend.
In addition to concerns about a global economic slowdown, Japan revised down its second-quarter gross domestic product reading on Friday, casting doubts over whether the ultra-dovish Bank of Japan could sustain economic growth.
