Crude Oil Closes Lower Yet Achieves Two-Week Winning Streak on Improved Demand Outlook

Oil prices experienced a decline on Friday, influenced by a stronger dollar, but managed to secure a second consecutive weekly gain amid indications of rising demand in the United States, the largest oil consumer in the world.

As of 14:30 ET, futures were down by 0.7%, settling at approximately $80.73 per barrel, while the contract fell 0.7% to $85.24 per barrel.

### Stronger Dollar Impacts Prices, Yet Weekly Gains Persist

The dollar surged on Friday following surprise data that indicated an uptick in services and manufacturing activity in June, which reduced speculation about imminent interest rate cuts. Since oil is denominated in dollars, a stronger currency can increase costs for foreign purchasers, thus affecting demand negatively.

However, optimism regarding demand persists, bolstered by recent data showing a decline in U.S. crude and gasoline inventories. On Thursday, reports indicated a drop of 2.5 million barrels in U.S. crude stockpiles for the week ending June 14, surpassing the anticipated 2.2 million-barrel reduction.

Moreover, government statistics indicated that total products supplied—a measure of domestic demand—increased by 1.9 million barrels per day (bpd) to 21.1 million bpd during the week.

Concerns about economic activity in the U.S. have weighed on the crude market as the Federal Reserve maintains high interest rates. Analysts from ING noted that the four-week average for gasoline demand continues to rise as the U.S. enters the summer driving season, alleviating some worries over gasoline consumption, though demand is still slightly below last year’s levels.

### Decrease in Baker Hughes Rig Count

According to data from Baker Hughes, the number of active oil rigs in the U.S. fell by three to a total of 485. This decrease in drilling activity occurs alongside the U.S. Energy Information Administration’s (EIA) upward revision of its U.S. crude oil production forecast for 2024. The EIA now predicts an average output of 13.24 million barrels per day this year, an increase from its previous estimate of 13.20 million barrels per day.

### Geopolitical Tensions Provide Some Support

In geopolitical developments, Ukraine’s military reported that its drones targeted several oil refineries and military installations in Russia early Friday. At the same time, Israel continued its military actions in Gaza amid ongoing conflict with Hamas, with warnings of a potential “all-out war” with Hezbollah in Lebanon.

Hezbollah’s leader has threatened retaliation against Israel in case of a cross-border conflict, further escalating tensions in this oil-rich region and raising the risk of supply disruptions globally.

This piece was contributed to by Peter Nurse.