Crude oil prices are on course to post a loss this week despite the recent spike after OPEC+ approved a production cut that is expected to reduce oil supply by roughly 1 million bpd.
After a drop of over 1 percent on Thursday, following the release of fresh U.S. inflation data, oil prices were on the mend at the time of writing, but expectations are for a 4-percent weekly decline in West Texas Intermediate, according to a Bloomberg report.
Thursday’s CPI report revealed a 6.6-percent annual core inflation rate, which was the highest in 40 years. The news immediately pushed both Brent crude and WTI down by more than 1 percent, adding to earlier pressure caused by deepening fears of a global recession.
“In the short term, the macro picture and potential US action — further SPR releases — to try and counter OPEC+ supply cuts could put some further downward pressure on prices,” the head of commodities strategy at ING, Warren Patterson, told Bloomberg.
“However, in the medium to long term, the market is looking increasingly tight which suggests that prices should move higher.”
The decision by OPEC+ last week to reduce output prompted a strong reaction from Washington, which called it a political decision and accused OPEC’s de facto leader Saudi Arabia of siding with Russia.
The Saudis responded by noting the decision was made by all OPEC+ members and that it was an economic one. In support of its argument, OPEC lowered its forecast for oil demand for this year in its latest monthly report on the state of the oil market.
Yet tailwinds for oil remain strong: the tightness of supply is one such tailwind factor and diesel inventories are another. In fact, yesterday EIA’s report that U.S. distillate stocks had once again booked a weekly decline prompted increased buying that pushed oil benchmarks higher, ending the day with gains despite earlier losses.
By Irina Slav for Oilprice.com
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