Oil prices extended their decline on Friday, moving further away from this week’s 10-month highs, amid apprehensions about China’s economic slowdown and the strengthening U.S. dollar, which overshadowed the gains driven by supply cuts announced by major producers Saudi Arabia and Russia.
Brent crude futures dipped by 41 cents, equivalent to 0.5%, settling at $89.51 per barrel by 0619 GMT, while U.S. West Texas Intermediate crude (WTI) futures slid by 50 cents, or 0.6%, to reach $86.36.
Earlier in the week, both benchmarks had reached their highest levels in 10 months, driven by concerns of potential shortages during the peak winter demand season. This surge was sparked by Saudi Arabia and Russia extending their voluntary supply cuts until the end of the year.
Despite these bullish indicators, market sentiment has been dampened by China’s slow economic recovery and the robust U.S. dollar, according to Priyanka Sachdeva, a senior market analyst from Phillip Nova.
Investors anticipate that U.S. interest rates will remain at 20-year highs, which has led to the strengthening of the U.S. dollar, increasing the cost of purchasing crude oil in other currencies.
The U.S. dollar index was just off a six-month peak on Friday.
“Investors took profits after the recent rally which was driven by concerns over tighter supply following extended production cuts in Saudi Arabia and Russia,” said Tatsufumi Okoshi, senior economist at Nomura Securities.
“The market has factored in the news of lower supply and it would need clear signs of stronger global demand, especially in China, to move higher,” he said, highlighting the consensus among investors that Beijing’s stimulus efforts have thus far failed to significantly boost its economy.
Data released on Thursday revealed that China’s overall exports and imports contracted in August, reflecting the pressures of weak overseas demand and reduced consumer spending in the world’s second-largest economy.
However, there was a surge of 30.9% in China’s crude oil imports last month, driven by refiners increasing their inventories and processing rates to capitalize on higher profits from exporting fuel.
Oil prices received muted support from a larger-than-expected draw in U.S. crude oil inventories.
For the fourth consecutive week, U.S. crude oil stockpiles decreased, with inventories declining by more than 6% in the past month. This reduction is attributed to oil refiners operating at high rates to meet global energy demand, as per data from the Energy Information Administration released on Thursday. Crude inventories saw a substantial drop of 6.3 million barrels, three times the expected 2.1 million-barrel decrease.
Despite its commitment to maintaining supply cuts, Russia is poised to increase its oil exports in September as Russian refineries commence seasonal maintenance. Reuters calculations based on sources’ data indicate this could limit price gains.
For the week, both Brent and WTI were still on track for a nearly 1% gain.
