Oil Muted After Two-day Rally, Still set for Weekly Loss

© Reuters.

By Ambar Warrick

AiVIF.com-- Oil prices traded sideways on Friday after a two-day rally on signs of improving U.S. demand, but were still set for weekly losses on concerns over a Chinese slowdown and a potential Iran-led supply glut.

West Texas Intermediate Futures- the U.S. crude benchmark- rose 0.1% to $90.62 a barrel by 20:19 ET (0019 GMT), while London-traded Brent oil futures rose 0.1% to $96.62 a barrel. Both contracts rallied between $2 to $3 in the last two sessions after a series of strong demand indicators from the United States.

But they were set to lose about 2% each for the week, after weak economic readings from major importer China significantly dented prices earlier this week. Data on Monday showed Chinese industrial activity slowed through July, while the People’s Bank of China unexpectedly cut interest rates in the face of slowing growth. 

Oil prices were further dented by speculation over the revival of the Iran nuclear deal, which could see the lifting of several Western sanctions on the country. The move is expected to release over 1 million barrels per day of supply.

Concerns over slowing global economic growth have severely dented oil prices in recent months, with prices recently touching their lowest levels since February- wiping out all gains made on supply shocks stemming from the Russia-Ukraine conflict.

But prices received some support in the latter half of this week. A bigger-than-expected drop in U.S. crude inventories, coupled with signs that gasoline demand was recovering steadily in the country, helped oil prices rally over the past two days. 

Traders also bet that the Organization of Petroleum Exporting Countries and its allies (OPEC+) would cut supply to keep prices underpinned.

While the group recently raised supply back to pre-COVID levels, OPEC Secretary-General Al Ghais recently hinted at a supply cut if prices were to fall further.

Ghais also assured traders that fears of an economic slowdown in China were exaggerated.