Crude oil prices were set for a weekly decline despite earlier gains made largely on the back of economic data.
The latest update that caused the benchmarks to climb higher was U.S. inflation data, which showed a monthly decline for June—the first in four years. On an annual basis, however, inflation was up by 3%.
The news of the monthly decline supported prices, with Brent regaining territory to top $85 per barrel after it slipped below this level earlier in the week on CPI data from China where the decline in consumer prices was seen by analysts as a negative rather than a positive, and a potential sign of weaker oil demand in the coming months.
The monthly CPI dip also fueled hopes of an interest rate cut, which has been in the focus of oil traders’ attention for months.
“Cooling US inflation numbers may support the case for the Fed to kickstart its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the US economy,” IG market strategist Yeap Jun Rong told Reuters.
Oil also received some support from OPEC’s latest monthly report, in which the cartel reiterated its expectations of strong demand for crude, seeing growth at some 2.25 million barrels daily for this year.
“Expected strong mobility and air travel in the Northern Hemisphere during the summer driving/holiday season is anticipated to bolster demand for transportation fuels and drive growth in the United States,” OPEC wrote.
If this does pan out, OPEC may decide to go ahead with the rollback of some of its production cuts to avoid what ING’s Warren Patterson called “a large deficit” in a recent second-half forecast. If it doesn’t, however, OPEC will likely stick to its production controls.
By Irina Slav
