Oil Retreats From $95, Eyes Weekly Gains on U.S. Optimism

By Ambar Warrick

Investing.com-- Oil prices fell from a recent peak on Friday, but were set to rise for a second consecutive week as a swathe of positive U.S. data helped ease fears over an economic slowdown, while the prospect of tightening supply also helped buoy prices.

London-traded Brent oil futures fell 0.2% to $94.44 a barrel, while West Texas Intermediate crude futures fell 0.8% to $88.37 a barrel by 21:25 ET (01:25 GMT). Brent futures were set to add about 1.2% this week, while WTI futures were up nearly 4%, with the latter also benefiting from increased demand as a price gap between the two contracts widened.

Third quarter U.S. GDP data on Thursday showed that the world’s largest economy fared better than expected in a high-rate environment, and also broke two consecutive quarters of declines.

Data released earlier showed the U.S. exported a record amount of oil in the prior week, sending a positive signal on global crude demand. A bigger-than-expected dip in gasoline inventories also showed that U.S. crude remained robust despite rising inflation and interest rates.

The positive cues pushed oil prices to a two-week high and put them on course for their second straight week of gains.

But the stronger-than-expected GDP reading boosted the dollar, which weighed slightly on crude prices on Friday. The greenback broke a 5-day losing streak, which had also benefited oil prices.

Focus now turns to the Federal Reserve’s upcoming policy meeting next week, where markets will be watching for any signs of a dovish pivot by the central bank. But given the recent resilience in the U.S. economy, chances of such a pivot appear uncertain.

The Fed is broadly expected to hike rates by 75 basis points and signal more hikes, a move that is likely to cause near-term volatility in oil markets.

Rising interest rates were one of the biggest weights on crude prices this year, as tightening liquidity conditions and a stronger dollar increased the cost of oil.

Still, the outlook for oil in the remainder of 2022 appears positive, especially after the Organization of Petroleum Exporting Countries cut production by 2 million barrels a day- its biggest cut since the 2020 COVID pandemic.

More Western restrictions on Russian oil are also expected to tighten supply in the coming months.

But on the demand front, rising interest rates and elevated inflation may limit the upside to crude prices. A prolonged slowdown in China, the world’s largest crude importer, is the biggest source of concern for oil bulls.