Oil rises 1% to hit 1-week high on rising demand optimism in China, US; Brent is approaching $84/bbl

Crude oil prices rose about 1 percent to a one-week high on Thursday, May 9, after economic data from China and the U.S. indicated that demand in the world’s two biggest crude-consuming nations may pick up. The rebound comes ahead of a decision on production policy by the Organization of the Petroleum Exporting Countries and its allies (OPEC+), scheduled for June 1, 2024.

Brent futures were up 40 cents, or 0.5 percent, at $83.98 a barrel, while U.S. West Texas Intermediate crude was up 46 cents, or 0.6 percent, at 79. 45 dollars. That put both benchmarks on track for their highest closes since April 30. On domestic prices, crude oil futures last traded 0.05% lower at ₹6,603 per barrel after hitting a high of ₹6,675 per barrel on the commodity exchange (MCX).

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What is working for the price of crude oil?

-In China, crude oil imports rose from a year earlier in April, and exports and imports returned to growth last month, signaling an encouraging improvement in demand at home and abroad as Beijing faces numerous challenges in an effort to sustain an unstable economy. Analysts said improved trade balance data from China contributed to the upward momentum in crude oil prices.

-In the US, the number of new jobless claims rose last week to the highest level in more than eight months, further evidence that the labor market is cooling. Analysts have estimated that the slump in the labor market puts two interest rate cuts by the US Federal Reserve back on the table this year.

– Lower rates would reduce borrowing costs and could boost economic growth and demand for oil. Meanwhile, the Bank of England took another step towards cutting interest rates, with a second official backing a cut and Governor Andrew Bailey saying he was “optimistic that things are moving in the right direction”.

– In the Middle East, Israeli forces massed tanks and opened fire near urban areas of Rafah, residents said, after US President Joe Biden vowed to withhold weapons from Israel if his forces launched a major invasion of the southern city Gaza. .

-In response, the leader of the Houthis in Yemen said that the Iran-backed group, which has already disrupted the movement of ships through the Red Sea, will target the ships of any company related to the supply or transport of goods to Israel, regardless of destination.

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Where are prices headed?

”WTI Crude oil futures rose after EIA inventory data showed a decline in US crude stockpiles. US crude oil stocks fell by 1.361 million barrels in the previous week, while gasoline and distillate stocks rose sharply,” said Kaynat Chainwala, Senior Manager-Commodity Research, Kotak Securities.

U.S. gasoline and diesel demand is at its weakest seasonal level since the coronavirus pandemic in 2020, dragging refinery margins for making the products to multi-month lows. This comes at the start of the summer driving season in the US, a period of peak demand for gasoline, according to the analyst.

“Recovery in the dollar index and fading hopes of a Fed rate cut are limiting crude oil’s gains. Crude oil has support at $78.20-77.50 and resistance at $79.90-80.60. In INR crude has support at ₹6,500-6,420 while resistance at ₹6,640-6,720,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The opinions and recommendations provided in this analysis are those of individual analysts or brokerage firms, and not of Mint. We strongly advise investors to consult with certified experts before making any investment decision, as market conditions can change rapidly and circumstances may vary.