Oil prices retreated on Friday as a cocktail of economic indicators soured investor appetite. A decline in consumer confidence coupled with rising inflation pressures cast a pall over the market, offsetting optimism about potential interest rate cuts.
Brent crude futures dipped by 37 cents to settle at $85.03 a barrel, while West Texas Intermediate crude futures shed 41 cents to close at $82.21 a barrel.
The day’s trading was marked by a tug-of-war between conflicting economic signals. On one hand, a monthly survey revealed a decline in U.S. consumer sentiment to its lowest point in eight months. While expectations for inflation eased slightly over the next year, the broader picture painted a less rosy outlook for consumer spending.
Simultaneously, the producer price index, a gauge of wholesale inflation, edged up 0.2% in June. This uptick, although modest, added to inflationary pressures and complicated the Federal Reserve’s monetary policy dilemma. Despite these inflationary headwinds, market participants are increasingly anticipating a potential interest rate cut in September.
Lower interest rates are generally seen as a catalyst for economic growth, which could in turn boost fuel consumption. However, the recent economic data has also raised concerns about a potential slowdown in the U.S. economy.
On the demand front, there were mixed signals. While U.S. gasoline consumption surged to a five-year high for the week encompassing Independence Day, bolstering oil prices, jet fuel demand also reached its strongest level since January 2020. This surge in fuel demand prompted U.S. refiners to ramp up operations and draw down crude oil inventories.
However, these positive developments were partially offset by signs of weakening demand from China, the world’s largest oil importer. Crude oil imports plummeted by 11% year-over-year in June, highlighting the challenges facing the Chinese economy.
Adding to the bearish sentiment, the U.S. active oil rig count declined by one to 478 this week, signaling a potential slowdown in future oil production.
Overall, the interplay of weaker consumer sentiment and mixed demand signals created a challenging environment for oil prices. As investors grapple with these conflicting factors, volatility is likely to persist in the near term.
Source: Reuters
