Oil prices dipped slightly on Friday, but were poised to close out the week with gains for the second consecutive week. The positive sentiment was fueled by a resilient U.S. economy and declining interest rates, which boosted hopes for increased oil demand.
While traders remained cautious about escalating tensions in the Middle East, adding a risk premium to crude prices, overall gains were tempered by persistent concerns over China’s economic slowdown. Mixed economic data released earlier this week did little to improve sentiment regarding the world’s largest oil importer.
Brent crude futures, expiring in October, fell 0.1 percent to $80.94 a barrel, while West Texas Intermediate crude futures dropped 0.2 percent to $76.85 a barrel by 21:25 ET (01:25 GMT). Despite the slight dip, both contracts were on track for weekly gains of between 1.5 percent and 2 percent.
Strong U.S. data drives uptick
The recent uptick in oil prices was driven by a series of positive U.S. economic indicators and signs of easing inflation. Strong retail sales figures for July suggested that U.S. consumers remain resilient, pointing towards a positive outlook for fuel demand. Furthermore, cooling inflation strengthened expectations that the Federal Reserve will cut interest rates in September.
Dollar weakness, lower rates support prices
The weaker inflation data led to a decline in the U.S. dollar, further supporting oil prices. Lower interest rates also present a positive outlook for crude demand.
However, an unexpected build in U.S. oil inventories hinted at a potential cooling of demand as the summer travel season winds down.
Read more: Oil prices climb on rate cut hopes, but China concerns remain
China’s slowdown remains a major worry
China continues to be a major concern for oil markets, as economic activity in the world’s largest oil importer shows little signs of improvement. China’s oil imports fell for the second consecutive month in July, and a string of economic indicators for the month were mostly negative.
The concerns surrounding China’s economy have prompted both OPEC and the IEA to downgrade their forecasts for oil demand growth in 2024. Both organizations cited policy uncertainty in China and persistent weakness in its economy as key factors in their revised projections.
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