Oil Prices Rise to Close Weekly Gain as Economic Data Boost Demand Outlook

Oil prices closed higher on Friday, concluding the week on a positive note as indications of slowing inflation in the U.S. raised hopes for potential interest rate cuts, coinciding with new stimulus measures from China that strengthened demand forecasts.

By 14:30 ET (19:30 GMT), West Texas Intermediate rose by 0.8% to $83.92 per barrel, while Brent crude increased by 0.9% to $79.57 per barrel. Both contracts enjoyed weekly gains ranging from 0.9% to nearly 1%, primarily attributed to softer-than-expected U.S. inflation readings.

### Weekly Gains Expected

The recent Consumer Price Index (CPI) data heightened expectations that the Federal Reserve might start lowering rates as early as September, contributing to a favorable outlook for crude oil demand.

However, this sentiment was somewhat tempered by warnings from several Federal Reserve officials, who emphasized the need for more evidence that inflation is under control before considering rate cuts.

### Baker Hughes Rig Count Increases

Baker Hughes reported that the U.S. rig count increased by one, reaching a total of 497 this week.

The rise in oil prices is promising, especially ahead of the upcoming CFTC positioning data, which will provide insights into market sentiment regarding bullish investments in oil.

### Mixed Signals in Oil Markets

Crude oil markets faced mixed indicators throughout the week. A larger-than-anticipated decline in U.S. oil inventories fueled optimism about rising demand as the summer travel season approaches.

On the flip side, the International Energy Agency (IEA) slightly reduced its annual demand forecast due to concerns over the global economic outlook amid persistent inflation and the possibility of elevated interest rates.

Conversely, the Organization of Petroleum Exporting Countries (OPEC) held its demand forecast for 2024 steady, anticipating an eventual economic recovery in China and the potential for lower interest rates later this year. OPEC is also expected to extend its current production cuts beyond June, which could tighten supply further.

Analysts at UBS noted that falling oil inventories and prolonged high U.S. interest rates might impact OPEC+’s proactive approach, projecting that the eight member states with voluntary production cuts may extend them for at least three additional months before their regular meeting in early June.

### Stimulus Efforts from China

China announced plans to initiate a significant bond issuance worth approximately $1 trillion, marking its first major fiscal stimulus effort aimed at bolstering a sluggish economic recovery.

In April, Chinese industrial production exceeded expectations, suggesting that the nation’s substantial manufacturing sector is on a recovery path thanks to increased government support.

Nonetheless, weak consumer spending remains a concern, with growth in retail sales falling short of predictions in April, and new home prices declining at their fastest monthly rate in over nine years.

China is anticipated to maintain its benchmark lending rates, although there is growing speculation that it may lower its mortgage reference rate in an effort to stimulate the housing market.