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Oil prices rise by nearly 3% as concerns about a possible economic downturn start to recede.

by Swati Gupta

May 9, 2023 6

Oil prices rose almost 3% on Monday, with Brent crude up $1.83, or 2.4%, at $77.13 a barrel, and US West Texas Intermediate (WTI) crude gaining $2.06, or 2.9%, to $73.40. The rebound follows three straight weeks of declines for both benchmarks, marking the first time since November that they had been down for three weeks in a row. The recent slide in oil prices was seen by some traders as overdone, and the market was viewed as oversold. The healthy US jobs report for April also helped boost the market, though the labour market strength could lead the Federal Reserve to keep interest rates higher for longer.

The rebound in oil prices followed energy stocks’ comeback on Wall Street last Friday after the US reported strong job data, which eased concerns about an imminent economic recession, said CMC Markets analyst Tina Teng. Despite the Friday rebound, Brent had finished last week with a decline of about 5.3%, while US crude plunged by 7.1%. However, analysts at Goldman Sachs said on Saturday that concerns over near-term demand and elevated supplies were “overblown”.

The Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, are due to begin a round of voluntary output cuts this month. The group holds its next meeting on June 4. OPEC’s latest monthly oil market report is due on Thursday, providing an updated reading on the demand and supply outlook.

Before then, US consumer price inflation figures for April will be in focus on Wednesday, potentially influencing the Fed’s stance on future interest rate decisions. Ole Hansen, head of commodity strategy at Saxo Bank, said that an oversold market condition combined with Brent managing to find support ahead of the March low forced recently established short sellers to seek cover, potentially highlighting that the recent sell-off was overdone.

Oil prices are highly sensitive to global economic conditions, as demand for energy fluctuates depending on the overall health of the global economy. The recent slide in oil prices was largely attributed to concerns over a possible US economic recession, as well as increased supplies of crude oil.

However, with the US jobs report for April showing strong labour market strength, traders became more optimistic about the US economy, easing concerns about a potential recession. Additionally, Goldman Sachs analysts noted that concerns over near-term demand and elevated supplies were “overblown”, which may have further helped to boost the market.

Additionally, Goldman Sachs analysts noted that concerns over near-term demand and elevated supplies were “overblown”, further boosting the market.

The upcoming OPEC+ output cuts will also play a role in determining oil prices. The cuts are aimed at supporting prices, as the group seeks to balance supply and demand in the oil market. The group’s next meeting on June 4 will provide an important update on the output cuts, and may provide further insight into the group’s strategy for managing oil prices in the near future.

Despite the recent rebound in oil prices, there are still several factors that could influence the market in the coming weeks and months. The US Federal Reserve’s stance on future interest rate decisions, for example, could impact the overall health of the US economy, which in turn could influence demand for oil. Additionally, ongoing geopolitical tensions and conflicts in regions such as the Middle East and North Africa could also affect the supply of oil, and potentially cause prices to rise.

Overall, the recent rebound in oil prices may signal a period of increased stability for the oil market. However, given the unpredictable nature of the global economy and the oil market, it is difficult to say for certain what the future holds for oil prices.