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Oil prices edge higher but on track for third week of losses

US crude oil and Brent edge higher as economic outlook concerns persist

Oil prices are staging gains with WTI and Brent both higher by more than 1% on Friday. Photo: Getty.
Oil prices are staging gains with WTI and Brent both higher by more than 1% on Friday. Photo: Getty. (Anton Petrus via Getty Images)

Oil prices moved slightly higher on Friday but still remained on track for a third week of losses, with investors uncertain about the economic outlook following interest rate increases this week by the US Federal Reserve and the European Central Bank (ECB).

The ECB raised rates by 25 basis points and the Fed hiked its rates by 25 basis points. Oil prices dropped 4% following the announcement from the US central bank.

At the time of writing, US crude oil, or West Texas Intermediate (CL=F), edged up 1.14% to $69.34 a barrel, while Brent crude (BZ=F) gained 1.19% to $73.36 a barrel.

“Oil prices are staging gains with WTI and Brent both higher by more than 1%, reversing some of this week’s losses, helping to lift oil stocks like BP and Shell towards the top of the FTSE 100," said Victoria Scholar, head of investment at Interactive Investor.

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"However oil is still on track for its third week of losses reflecting uncertainty about the global economic outlook and the threat of weaker demand, particularly from China."

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Scholar’s comments on China come after recent data showed April manufacturing activity fell unexpectedly in the world's largest energy consumer and top buyer of crude oil.

Moreover, Morgan Stanley has lowered its forecast for Brent prices to $75 a barrel by the end of the year.

"Downside risk to Russia's supply and upside risk to China's demand have largely played out and prospects for 2H tightness have weakened," the bank said in a note to clients.

Meanwhile, government data showed US gasoline inventories unexpectedly rose by 1.7 million barrels last week. Analysts polled by Reuters had expected a 1.2 million-barrel drop. This has also put pressure on oil prices.

Read more: FTSE 100 and European stocks rise with interest rates still in focus

Edward Moya, senior market analyst at OANDA, also noted how the banking sector turmoil is adding to economic uncertainty and also impacting oil prices.

“Crude prices remain heavy on weakening demand from Asia and as US banking turmoil will eventually cripple the world's largest economy. Saudi Arabia’s price reduction wasn’t as large as some were expecting, but it still confirms slowdown fears. Saudi Aramco lowered the price for Arab light grade by 25 cents to $2.55 a barrel, less than the Bloomberg forecast of $0.45.

“This banking crisis might make the oil market start pricing a much worse recession for the US, which is bad news for the crude demand outlook. If equities continue to plunge here, oil might struggle finding support around the mid-$60s.

"The outlook for the economy is getting uglier by the day and that is making it easier for energy traders to jump on the momentum selling that is hitting WTI crude,” he added.

Independent macro analyst, Piero Cingari, said traders will also be keeping an eye on oil reserves data released next week.

Watch: Energy market outlook: Prices could be volatile, says Chevron VP