Oil prices steady, set for mild weekly gains on positive demand forecasts

Investing.com-- Oil prices moved little in Asian trade on Friday, but were set for some gains this week as optimistic demand forecasts and output disruptions in the U.S. helped offset fears of slowing economic growth and high interest rates.

Both the International Energy Agency and the Organization of Petroleum Exporting Countries forecast an improvement in demand over the next two years, citing an economic recovery in China and an eventual decrease in interest rates.

Prices were also supported by an unexpected drop in U.S. crude inventories, which also came as severe cold weather knocked off about 40% of oil output in North Dakota. But limited travel conditions spurred a sustained, outsized build in oil product inventories.

Concerns over disruptions in Middle East supplies remained in play, as U.S.-led forces continued to clash with the Iran-backed Houthi group in the Red Sea. Iran and Pakistan also appeared to have opened up a new conflict, pointing to further instability in the region.

The flurry of positive signals helped prices recover marginally from a rough start to the year. Prices were also nursing an over 10% slide through 2023.

Brent oil futures expiring in March were flat at $79.07 a barrel, while West Texas Intermediate crude futures steadied at $73.97 a barrel by 20:15 ET (01:15 GMT). Both contracts were up between 0.8% and 1.4% for the week.

Economic jitters, rate-cut uncertainty remain in play

But weekly gains in crude prices were held back by persistent concerns over slowing economic growth and high interest rates, at least in the near-term.

Top importer China clocked weaker-than-expected economic growth in the fourth quarter, while barely edging past a government growth target for the year. The data ramped up concerns over sluggish crude demand in the world’s largest oil importer, especially as a post-COVID economic rebound largely failed to materialize.

Strength in the dollar- which rebounded to over one-month highs this week, also weighed on oil prices, amid growing doubts that the Federal Reserve will cut interest rates by as soon as March 2024.

While the Fed is expected to eventually trim interest rates this year, recent signs of sticky U.S. inflation and labor market strength spurred increased uncertainty over the timing and scale of the cuts.

Dismal economic data from the euro zone also fed into concerns over oil demand, while sticky inflation readings indicated that the European Central Bank was likely to keep monetary policy restrictive in the near-term.

Barring any disruptions in Middle East supply, oil markets are expected to remain well supplied in the first half of 2024 following underwhelming production cuts from the OPEC and record-high U.S. output.

Upgrade your investing with our groundbreaking, AI-powered InvestingPro+ stock picks. Use coupon INVSPRO2024 to avail a limited time discount on our Pro and Pro+ subscription plans. Click here to know more, and don't forget to use the discount code when checking out!