The oil price was under pressure at the end of last week, but the price is now rising again. Investors are not too positive about the economy, but are becoming more confident in the recovery of both the Chinese and American markets in 2024. In addition, Saudi Arabia has raised prices and OPEC is keeping supply low.
The oil price fell slightly, but remains generally stable. On Thursday, February 29, oil traded at €83,62 per barrel. The price then fell to the lowest point of the week on Tuesday, March 5, at €82,04. Since then, the oil price rose again to €82,85 on Thursday, March 7.
At the beginning of the week, the oil price was still under pressure. Low expectations for the Chinese economy caused a slight decline in the oil market. However, this changed after China expressed its growth ambitions. In the context of the annual People's Congress, the Chinese government expressed a growth expectation of 5%. In addition, the Chinese state wants to reduce urban unemployment to 5,5% and the country wants to reverse deflation to inflation of 3%. The goals give investors confidence that China wants to intervene more firmly in the economy.
In addition, Chairman of the US Central Bank (Fed) Jerome Powell announced on Wednesday that US interest rates will only fall if inflation is at or below the desired level of 2% for a longer period of time. Initially, this is a dampening factor for the oil price, as higher interest rates slow down the growth of the American economy. Yet the market also saw this as a positive signal. Given the positive US inflation development, there is a good chance that interest rates will fall in 2023, according to Powell.
Interest rate cuts support oil prices
The fact that the price rose again on Wednesday is the result of indications of greater American demand. According to the US Energy Agency (EIA), US oil supplies increased by 1,37 barrels. This is less than the market had in mind. A Reuters survey of economists showed the average expectation for reserves to increase by 2,17 million barrels.
In addition, Saudi Arabia has chosen to slightly increase oil prices. The Gulf state opted for this after oil cartel OPEC decided on Sunday, November 3, to maintain the lower targets until at least the end of June. In this way the cartel hopes to stabilize the market. These factors make the market more positive about the oil price. The number of short positions in the US market fell by two-thirds last month. Investors anticipate an increase, although the price is expected to increase slowly.
The diesel price rose briefly, but is now lower. On Thursday, February 29, the price of 100 liters of diesel was €131,65. On Friday, March 1, the price was at the highest point of the week, at €132,56. After that, the price of diesel fell. On Wednesday, March 5, the diesel price was €130,92.