The oil futures market saw a positive trend on Friday, with benchmarks set to record a fourth consecutive weekly rise. Experts predict that the second half of 2023 will witness a tightening of supplies in the crude market.
Price Action
- West Texas Intermediate (WTI) crude for September delivery rose by $0.93, or 1.2%, reaching $76.58 per barrel on the New York Mercantile Exchange. This puts the U.S. benchmark on track for a 1.6% weekly advance.
- September Brent, the global benchmark, increased by $1.01, or 1.3%, reaching $80.65 per barrel on ICE Futures Europe. It is expected to record a 1% weekly rise.
- On Nymex, August gasoline rose by 0.8% to $2.765 per gallon, while August heating oil jumped by 1.5% to $2.704 per gallon.
- August natural gas rose by 0.8% to $2.778 per million British thermal units, with a weekly rise of over 9%.
Market Drivers
The oil futures market has experienced a rebound this July, with WTI recording a gain of over 8% and Brent showing an increase of nearly 7%. This has helped to reduce year-to-date losses to 4.5% and approximately 6%, respectively.
Weakness in Crude Prices Linked to Interest Rate Concerns and China’s Rebound
The recent weakness in crude oil prices in 2023 can be attributed to concerns surrounding interest rate hikes by global central banks, which are feared to trigger a sharp economic downturn. Additionally, China’s rebound after the lifting of strict COVID-19 restrictions has been disappointing, further impacting the crude market.
Despite these challenges, there are expectations that central banks are nearing the end of their interest rate hiking cycles and that the economy may prove to be more resilient than initially feared. These positive sentiments have accompanied crude oil’s rebound. Furthermore, supply cuts implemented by Saudi Arabia and Russia are also expected to contribute to balancing the market and potentially moving it into deficit in the second half of the year.
The West Texas Intermediate (WTI) crude oil, on the other hand, has been trading just below its 200-day moving average. Currently, it stands at $77.17 per barrel, based on the most actively traded contract, as reported by FactSet. The 200-day moving average is considered as a reliable indicator of a market’s long-term trend. It is worth noting that WTI has not traded above the 200-day moving average since late August.
According to Robert Yawger, Executive Director for Energy Futures at Mizuho Securities, breaking the unbroken streak of the 200-day moving average could potentially attract buy stops from speculative traders, serving as an entry point for new positions. It may also trigger computer-generated flows within the market.
In conclusion, concerns over interest rates and China’s economic rebound have contributed to the weakness in crude oil prices in 2023. However, with expectations of central banks nearing the end of their interest rate hikes and potential supply cuts from major oil-producing nations, there is optimism that the market will regain strength in the coming months.
