Oil prices declined on May 12, heading for a fourth weekly drop, as renewed economic concerns in the United States and China weighed on demand growth in the near-term, a potential trigger for greater volatility in oil markets. The fuel demand growth in two of the largest oil consumers in the world also decides the output supply from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+. 

Brent crude futures last fell 43 cents, or 0.57 per cent, to $74.55 a barrel. West Texas Intermediate (WTI) US crude futures were down 33 cents, or 0.47 per cent, to $70.54. Both benchmarks are set to fall by more than 1 per cent for the week, which would be the longest streak of weekly declines since November 2021. This comes after both Brent and US WTI gained in the first three sessions on positive data of employment in the US - a potential boost for the labour market and decreasing oil inventories. 

What's happening in US and China?

There is a growing concern that US will enter into recession as discussions over the US government's debt ceiling have been postponed which has renewed fears that another regional bank is in crisis. Treasury Secretary Janet Yellen said that the US faces financial and economic catastrophe if Congress fails to raise the debt ceiling.

The US Federal Reserve may need to raise interest rates again in its next meeting as the inflation data so far has not convinced Fed Governor Michelle Bowman that prices are receding.The decline in oil prices was still limited by a signal from US energy secretary Jennifer Granholm that the country could repurchase oil for the Strategic Petroleum Reserve (SPR) after completing a congressionally mandated sale next month.

Also, a decline in new loans to businesses in China and weaker economic data earlier in the week has renewed the doubts about its recovery from COVID restrictions the oil demand growth. China's April consumer price data rose at a slower pace and missed expectations, while factory gate deflation deepened, suggesting more stimulus may be needed.

 

OPEC holds global oil demand steady at 2.3 bpd

OPEC's global oil demand forecast for 2023 was held steady for a third month on May 11, with the oil cartel citing the potential Chinese growth to be offset by downside economic risks elsewhere such as the US debt ceiling. The world oil demand in 2023 will rise by 2.33 million barrels per day (bpd), or 2.3 per cent, OPEC said in its monthly report. This was unchanged from 2.32 million bpd forecast last month.

The latest round of oil output cuts announced on April 2 by members of OPEC+ cartel which will last till the end of the year, has failed to boost oil prices in May, that have been hit by further interest rate hikes and concern over the US debt ceiling. However, a day after the announcement, oil prices surged over 8 percent to $83.95 a barrel, marking the highest rise in more than a year.