Oil prices remained steady on Tuesday as investors weigh holiday travel in China on fuel demand, as well as the prospect of rising interest rates in other countries. Brent crude was at $82.70 per barrel, while West Texas Intermediate crude was at $78.73 per barrel. On Monday, oil futures had risen more than 1% in response to optimism that holiday travel in China would lead to increased fuel demand.
Bookings for trips abroad in China during the upcoming May Day holiday indicate a continuing recovery in travel to Asian countries. However, the number of bookings remains significantly lower than pre-COVID levels, and long-haul airfares have risen, with a shortage of available flights. Analysts have expressed optimism about the effect of Chinese holiday travel on fuel demand in the world's largest oil importer.
Expectations of a slowdown in U.S. GDP growth in the first quarter of 2023 have prompted a pullback in the U.S. dollar index, according to Leon Li, an analyst at CMC Markets. This has supported gains in oil prices, since a weaker U.S. dollar can increase global demand for oil by making it cheaper for holders of foreign currencies. However, investors are concerned about the possibility of central banks in the United States, Britain, and the European Union raising interest rates to curb inflation, which could slow economic growth and energy demand.
Suvro Sarkar, energy sector team lead at DBS Bank, has stated that despite concerns about the still-hawkish Federal Reserve, predictions of a recession in the West in the second half of the year, and the potential for lower-than-expected oil demand recovery in China, oil prices will rebound to $85 per barrel and higher in the coming months. This is due to the OPEC+ cut and increasing evidence of oil demand growth from China.
Despite Russia's pledge to cut production by 500,000 barrels per day (bpd) in March, the country's oil loadings from western ports in April are expected to rise to above 2.4 million bpd, according to trading and shipping sources. This is the highest level since 2019. Russia's Deputy Prime Minister Alexander Novak has promised to extend production cuts until the end of the year.
Investors in the forex market are closely monitoring oil prices as they are affected by various factors, including supply and demand, geopolitical tensions, and macroeconomic conditions. The recent stability of oil prices, driven by the interplay between holiday travel and interest rates, has led to fluctuations in currency markets, with the U.S. dollar index pulling back. The potential for further interest rate hikes could affect forex markets, particularly those that are sensitive to changes in interest rates, such as emerging market currencies. Additionally, oil-producing countries' currencies are also affected by changes in oil prices, which can lead to fluctuations in their exchange rates.