Oil rose 3%, at its highest level in 9 weeks

2023-07-08 06:15:00

Oil prices

Concerns about supply shortages and buying demand overwhelmed the market

New York – Archyde.com

Posted on: July 08, 2023: 10:15 AM GST Last updated: July 08, 2023: 10:39 AM GST

Oil prices rose about 3%, hitting their highest levels in 9 weeks, in Friday’s session, as concerns about supply shortages and technical buying outweighed concerns that raising interest rates would slow economic growth and lower demand for oil.

Brent crude futures rose $1.95, or 2.6%, to settle at $78.47 a barrel. US West Texas Intermediate crude increased by $2.06, or 2.9%, to $73.86 a barrel.

This is the highest closing level for Brent crude since May 1 and the highest for WTI since May 24. Both benchmarks gained about 5% for the week.

“The rally over the past week or so … has been very strong and supported by momentum, along with the new cuts announced by Saudi Arabia and Russia,” said OANDA Senior Market Analyst, Craig Erlam.

This week, the two countries announced new production cuts, bringing the total reduction in production of the “OPEC +” alliance, which includes the Organization of the Petroleum Exporting Countries (OPEC) and its allies, to about 5 million barrels per day, which is equivalent to 5% of global demand for crude.

“It is expected that the production cuts of the OPEC + alliance will lead to a scarcity in the market, which will lead to a shortage of supplies in the second half of 2023 and boost oil prices,” analysts at the American company Morning Star Financial Services said in a note.

Sources close to “OPEC” said that the organization will likely maintain its optimistic forecast of oil demand growth next year.

A government source told Archyde.com that Russia’s latest pledge to cut oil exports would not require a similar cut in production.

Prices also drew support from the decline in the dollar index to its lowest level in two weeks, after data showed less-than-expected job growth in the United States, but it is strong enough to push the Federal Reserve (the US central bank) to resume raising interest rates later this month, as previously indicated.

The dollar’s decline makes crude oil less expensive for holders of other currencies, which could boost demand for oil.

According to CME Group’s Videowatch service, the probability that the US central bank will raise interest rates by 25 basis points at its July 25-26 meetings is now around 95%, up from 92% just before the jobs data was released.

Higher borrowing costs would slow economic growth and reduce demand for oil.