Oil prices registered second consecutive weekly loss
Oil prices have registered their second consecutive weekly loss, despite energy companies posting strong earnings and US data indicating a decline in crude output and growing demand. Brent, which is the benchmark for two thirds of the world’s oil, closed 2.7% higher at $80.33 a barrel on Friday, while West Texas Intermediate settled up 2.7% at $76.78 a barrel. However, Brent declined around 3% this week and 5% the prior week, while WTI fell about 1% this week and 6% the week before.
Energy companies report positive outlook for demand and travel
Exxon chief executive, Darren Woods, and Chevron's chief executive, Mike Wirth, both provided a positive outlook for oil demand and travel. Woods stated that gasoline demand is reasonable, and jet fuel demand is trending up, while Wirth noted that jet demand is growing, and travel is up to nearly 90% of pre-Covid levels. Edward Moya, senior market analyst at Oanda, stated that after hearing from Exxon and Chevron, it is hard not to be short-term bullish on oil prices. Crude prices should have no trouble rallying above the $80 a barrel level if China's weekend PMI data shows the recovery is gaining steam, added Moya.
US economic growth slows down
The Commerce Department stated that US economic growth slowed down to 1.1% in Q1 2023, as an increase in consumer spending was offset by businesses liquidating inventories. This figure came in below economists' expectations of 2% growth, while core personal consumption expenditure rose by 4.9% versus economists' projections of 4.7% growth. Markets were also rattled as fears of a banking crisis were revived this week after First Republic Bank disclosed that its deposits had plunged by about $102 billion during the first quarter.
OPEC+ Cuts Insufficient to Stabilize Oil Market
Abu Dhabi Commercial Bank economists said in a research note that the bearish bias in the oil market reflects demand-side concerns as broader macroeconomic indicators point to a slowdown in global growth momentum. They added that the OPEC+ announcement was also likely influenced by the build-up in short positions following banking sector turmoil in the US and eurozone in March. While the output curbs will be in place from May until the end of December, aimed at supporting the stability of the oil market, producers said, Brent has given up all of its gains made since the announcement.
Forex Traders Monitor US Federal Reserve Meeting
Energy traders will be closely following the US Federal Reserve meeting next week for guidance on interest rates. Chief investment officer at Zaye Capital Markets, Naeem Aslam, stated that traders know that the US economy is experiencing a difficult time, and it is pretty much a given that the Fed is going to increase the interest rate by another 25 basis points. This means that earnings are going to be adversely influenced further in the coming quarter, and the US economy will face further slowdown, added Aslam. The US Energy Information Administration reported that US commercial crude stocks fell by 5.1 million barrels last week, while petroleum stocks decreased by 2.4 million barrels and distillate fuel inventories recorded a 600,000-barrel drop.
Forex traders should also monitor the potential banking crisis and its impact on the forex market. The decline in liquidity and an increase in risk aversion could lead to increased volatility. Diversification of portfolios could help hedge against potential risks in the banking and oil sectors. It's crucial to stay up-to-date with the latest news and data to make informed decisions in the forex market.