Oil prices have fallen sharply over the past few weeks on deepening concerns about OPEC compliance and fears that the global economy is at risk of slowing down.
On Thursday, West Texas Intermediate (WTI) crude oil settled 0.8 percent lower at $67.15 per barrel, while Brent finished 0.4 percent lower at $71.42.
This brings crude oil prices nearly 3 percent down for the week as traders have grown concerned that OPEC will not comply with its supply cuts, with Saudi Arabia, the cartel’s de facto leader, reluctant to cut production, according to Reuters.
“It’s kind of bleak,” said Michael McCarthy, chief market strategist at CMC Markets, when assessing the outlook for oil prices.
The selloff is also the latest by an oil market, which has found itself caught up in an overall risk-off scenario, triggered by fears of a slowdown in China and fears of President Donald Trump retaliating against Chinese imports with a Section 301 investigation into China’s intellectual property practices.
“The market took one step back with the suspension of a Buy-Out of Citic Group, and another step forward with news the U.S. and China were talking and the threat of U.S. tariffs,” said Jonathan Barratt, chief executive officer at Ayers Alliance in Sydney.
Oil prices, which have slipped 8 percent since mid-May, are also driven by broader fears of a Chinese slowdown and a U.S. equity market decline, both of which are being fueled by ongoing growth concerns around the world.
Some analysts see a risk of further supply disruptions from U.S. crude oil exports to Iran to thwart U.S. sanctions on the Islamic Republic, though uncertainty about potential settlement terms continues to weigh on oil prices.
Weekly U.S. crude inventory data will be released on Friday by the American Petroleum Institute (API) at 4:30pm ET, while the official U.S. government data for the week ending May 17 will be released by the Energy Information Administration (EIA) on Wednesday, May 29.
Economists expect API’s data to show crude inventories fell last week by about 1.7 million barrels, while the EIA is expected to report that crude supplies increased by about 681,000 barrels.
“[Crude] supplies are tight but there are still supply issues. I don’t know how much [oil] can come out [from Citic], but if there’s any unwanted barrels coming on, we’ll have to deal with it,” Barratt said.
Assets erased earlier gains by a basket of risky assets across Asia on Friday, as traders said a worsening growth outlook in China and Brexit fears weighed on sentiment, which also pulled the world’s benchmark stock index to a one-week low.
In U.S. Treasuries, the yield on the benchmark 10-year U.S. Treasury note was down 0.03 percentage point at 2.875 percent as investors looked for safety ahead of the release of the Chinese data.
The premium for holding U.S. government bonds instead of less-safe Treasuries dropped this week. In the U.S. dollar, the Australian dollar hit a two-week low while the New Zealand dollar also eased to a two-week low.
– ERIK ADAMS via Reuters
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