Trading activity for the benchmark West Texas Intermediate (WTI) crude oil increased on Friday, with prices rising to a level of approximately $84.10, as markets reacted to lower-than-expected US economic growth data, compared to potential geopolitical tensions.
Following the release of the GDP report by the Commerce Department on Thursday, oil prices witnessed a decline due to slowing US economic growth in the first quarter, coupled with increasing inflation rates.
The US economy expanded at its slowest pace in nearly two years in the first quarter, with inflation rising at a faster pace.
With US GDP growing at 1.6% year-on-year in the first quarter of 2024, compared to 3.4% in the fourth quarter of 2023, this increase falls short of market expectations of 2.5%, reinforcing tensions over the timing of interest rate cuts from… Before the Fed.
Despite this, oil prices remained positive momentum thanks to Treasury Secretary Janet Yellen’s comments indicating strong US economic growth, overcoming weak quarterly data.
Besides this, there continues to be concern about oil supply and demand tensions as a result of geopolitical tensions, which promote stability in oil prices.
On the other hand, market concern about the decline in US commercial crude inventories led to a rise in West Texas Intermediate crude oil prices, after the Energy Information Administration announced a decrease of 6.368 million barrels in crude inventories.
The Energy Information Administration (EIA) reported that crude inventories for the week ending April 19 fell by 6.368 million barrels from the previous reading of 2.735 million barrels.
In general, oil prices are heading towards a positive end to the week, supported by statements from an American official regarding economic growth, amid continuing geopolitical tensions in the Middle East.
Improvement in West Texas Intermediate and Brent crude prices
The futures contracts for US West Texas Intermediate crude oil and Brent crude oil recorded a noticeable improvement in prices during the recent period, as prices rose at encouraging rates. The futures contracts for West Texas Intermediate crude oil rose by 0.3%, equivalent to 23 cents, to reach $84.10 per barrel, while the contracts recorded Brent crude futures rose 0.4%, or 31 cents, to $89.32 per barrel.
Oil prices are affected by several factors, including global economic and political developments, which have significantly affected prices in recent days. In this context, US Treasury Secretary Janet Yellen expressed her optimism about the recovery of the US economy, noting the possibility of adjusting GDP growth for the first quarter to reach higher levels, which led to alleviating concerns related to inflation and oil price fluctuations.
Despite the slight improvement in prices, there are ongoing geopolitical tensions in the Middle East that raise concerns about global supplies of oil, increasing volatility in global markets.
According to the Commerce Department’s Bureau of Economic Analysis, the last quarter saw a 1.6 percent annual increase in GDP, which represents the slowest growth rate since the second quarter of 2022. They had expected a higher growth rate of 2.4 percent, with estimates ranging from 1.0 percent to 3.1 percent.
In the previous quarter, the economy saw a growth rate of 3.4 percent. However, the growth rate observed in the first quarter was lower than the non-inflationary growth rate of 1.8 percent that US central bank officials consider ideal.
In general, the global economic and political situation remains the focus of attention of investors and analysts, as they expect continued fluctuations in oil prices in the coming period based on current developments.”
Treasury Secretary Janet Yellen’s statements and their impact on oil prices
Treasury Secretary Janet Yellen’s comments on Thursday provided a major boost. Yellen hinted at a possible upward revision in US GDP growth in the first quarter, suggesting that inflationary pressures may ease after several anomalies hampered economic performance. Her comments came amid concerns about slowing growth in the first quarter and concerns about the Federal Reserve’s stance on interest rates, which initially weighed on oil prices.
The price of West Texas Intermediate (WTI) crude oil shows almost stability at $84.10 per barrel, with a slight decline of 0.10% recorded during European trading hours last Friday.
Despite these positive forecasts, concerns about fuel demand persisted as US gasoline inventories showed a smaller-than-expected decline, coupled with an unexpected rise in distillate inventories.
Annual growth in US GDP slowed in the first quarter, rising 1.6%, compared to the previous reading of 3.4%, below market expectations of 2.5%. This slowdown indicates potential challenges in various sectors of the US economy, which may reduce demand for oil in light of the slowdown in economic activity.
In contrast, US consumer prices rose, with the PCE price index rising at an annualized rate of 3.7% in the first quarter, beating market expectations and the previous reading.
Statements by Treasury Secretary Janet Yellen provided the price of West Texas Intermediate crude with support, as she indicated the possibility of a positive adjustment to US economic growth, in addition to restoring balance in inflation rates after a period of unexpected fluctuations in the market. However, the price of oil remains stable, supported by potential risks associated with tensions in the Middle East.
Economic analysis of oil: a balance between optimism and challenges
Despite the positive developments taking place in the oil industry, there are continuing concerns surrounding the balance of demand and supply. Energy Information Administration (EIA) data shows a decline in US gasoline inventories, while distillate stocks are seeing an unexpected rise, casting doubt on the stability of demand. However, the remarkable rise in crude exports is a sign of hope, confirming the strength of underlying demand.
Oil prices are affected by several factors, including global economic and political developments, which have significantly affected prices in recent days. This slowdown indicates headwinds or a potential slowdown in various sectors of the US economy.
On the other hand, geopolitical tensions in the Middle East continue to cast a shadow over the market, as the tensions raise fears of disruptions affecting oil supplies. Although production continues, traders remain cautious, aware of the potential repercussions of the turmoil.
The market’s focus now comes on the Personal Consumption Expenditures (PCE) Price Index report, a key measure of inflation, which should influence the Fed’s decisions. A slight rise in consumption figures is expected, reflecting growing inflationary challenges.
Uncertainty hangs over the future direction of the Fed’s policy, with differing views on the timing and size of potential adjustments to interest rates. Demand for crude oil may be particularly sensitive to higher-than-expected inflation data, as prolonged interest rate hikes could weigh on economic growth.
In short, oil markets remain sensitive to volatility, facing multiple challenges from optimism in positive indicators and concerns about inflation and monetary policy. Traders need to be careful and make decisions wisely in these delicate times, and dealing in the oil markets requires wisdom and caution to deal with challenges and opportunities effectively.
