Oil prices stabilized on Friday,5th May, but they were on track to experience their most significant decline in almost two months. This was primarily due to concerns about a potential slowdown in the U.S. economy and a weaker-than-anticipated recovery in Chinese oil demand.
Furthermore, apprehensions regarding a banking crisis in the United States, which could hinder economic growth, added to the downward pressure on oil prices. The recent failure of another U.S. bank intensified these worries and led to substantial losses in the crude oil market.
Brent oil futures experienced a slight increase of 0.1%, reaching $72.58 per barrel, while West Texas Intermediate (WTI) crude futures also rose by 0.1% to $68.67 per barrel as of 20:52 ET (00:52 GMT). However, both Brent and WTI contracts were projected to record significant losses ranging from 8% to 11% for the week. This decline marks the third consecutive week of diminishing prices for both types of crude oil.
During the previous session, oil prices received some support despite concerns about the oil supply from Iran and Russia. The weakening of the dollar, along with expectations of a pause in Federal Reserve interest rate hikes, helped prevent a larger decline in crude markets. However, worries about a potential recession placed a cap on any significant increase in oil prices, which were trading near their lowest levels since December 2021.
Recent data revealed that Chinese manufacturing activity unexpectedly contracted in April, indicating an uneven economic recovery in the country after the COVID-19 disruptions of the past three years. This led traders to question whether there would be a rebound in crude demand in China as anticipated, which had been a crucial factor supporting bullish sentiments in the oil market.
Moreover, the U.S. Federal Reserve expressed concerns about a mild recession this year as they raised interest rates and signaled a more data-driven approach to future rate hikes. Given the significant slowdown in U.S. economic growth this year and the ongoing banking sector crisis, there were doubts in the market about the central bank's capacity to further raise interest rates.
The focus has now shifted to the release of U.S. nonfarm payrolls data later in the day, which is expected to influence the Federal Reserve's decisions on future rates. While the data is projected to indicate a slowdown in the labor market during April, any unexpected positive surprises could lead to a reevaluation of bets on the Federal Reserve pausing its rate hikes.
Oil prices have experienced a substantial decline this year, largely reversing the recent gains that resulted from a surprise increase in production by the Organization of Petroleum Exporting Countries (OPEC). Market concerns have grown that deteriorating economic conditions, coupled with high interest rates and relatively high inflation, may dampen crude demand in the current year.
