Oil Pares Weekly Decline As Risk-On Sentiment Buoys Prices
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(Bloomberg) -- Oil pared its weekly decline as a softer dollar bolstered trader demand across assets, offering a spot of relief to a crude market burdened by demand concerns.
West Texas Intermediate rose above $86 a barrel, but is still down almost 2% this week after hitting the lowest since January. Extended Covid lockdowns in China are deepening concerns that demand for oil will shrink and touch off a broader economic slowdown. The dollar rallied for much of the week adding another headwind to commodities priced in the currency, though a sharp reversal Friday lifted oil and other riskier assets.
“The broader market rally is helping push crude prices higher,” said Ed Moya, senior market analyst at Oanda. “China’s inflation numbers were promising and that is giving hope that central banks won’t have to be as aggressive with tightening over the next few months.”
Crude is down about $40 from its closing high earlier this year and the market has been beset by volatility ever since Russia invaded Ukraine. For much of the period since March, daily trading volumes have been below the 200-day average. Liquidity across commodity markets has also faced scrutiny amid Europe’s energy crisis, with the region’s ministers gathering in Brussels Friday.
Crude’s slump this week presents a challenge for the Organization of Petroleum Exporting Countries and its allies after they announced a nominal output cut at the start of the week, which triggered a short-lived rally. The reduction surprised many traders, who had expected no change from OPEC+ no change.
Despite the current bout of market weakness, US officials are hunting for ways to head off a feared spike in oil prices later this year, including the possibility of an additional release from strategic crude reserves. The officials are warning of a potential increase in prices this December when EU sanctions on Russian energy supplies take effect, unless other steps are taken.
On Thursday, US government data showed a large buildup of crude inventories, which swelled by a greater-than-expected 8.8 million barrels. At the same time, a gauge of gasoline demand sank below 2020 seasonal levels.
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