Oil prices muted amid economic uncertainty, but set for strong week

By Ambar Warrick

Investing.com -- Oil prices moved little on Friday amid growing concerns over a U.S. economic slowdown and a staggered recovery in China, but were headed for strong weekly gains as near-term supply remained constrained due to disruptions in Turkey.

Softer-than-expected inflation data from China showed that local spending only saw a mild recovery after the lifting of anti-COVID measures earlier this year, indicating that the world’s largest oil importer may take longer than expected in recovering to pre-pandemic levels of growth.

Oil markets were also pressured by signs of a potential U.S. recession, as an inversion in the yield curve - a classic indicator of a slowdown - reached its deepest level since the 1980s.

The prospect of a slower-than-expected recovery in China, coupled with a potential U.S. recession this year, could point to softer oil demand this year.

Brent oil futures were flat at $84.25 a barrel, while West Texas Intermediate crude futures rose 0.2% to $77.84 a barrel by 21:01 ET (02:01 GMT). Both contracts were set for a weekly gain of about 5.5% and 6.3%, respectively.

Crude prices rallied sharply from recent lows this week after a catastrophic earthquake in Turkey disrupted oil flows from Iraq and also halted exports from the Ceyhan terminal, heralding tighter supply in parts of Europe, Asia, and North America.

It remains unclear when exports from the Ceyhan terminal will resume, with several operators declaring force majeure in the region.

Oil markets were supported by Saudi Arabia increasing its official crude sales price to Asia, which indicates that the world’s largest oil producer sees a potential recovery in Chinese demand.

Weakness in the dollar, amid growing uncertainty over the path of U.S. interest rates, also benefited crude markets. While a slew of Federal Reserve officials signaled that rates are likely to increase in the coming months, higher-than-expected weekly unemployment claims data boosted hopes that a cooling jobs market could stay the Fed’s hand.

Focus now turns to U.S. inflation data for January, due next week, for more cues on the potential path of U.S. monetary policy. While inflation is forecast to have eased further from the prior month, it is still expected to read well above the Fed’s annual target.