Oil prices edged higher on May 4 but were unable to much of this week's more than 8 per cent decline as demand concerns in major consuming countries continued to weigh.

Earlier in the day, Brent oil futures were up 73 cents, or 1.01 per cent, to $73.06 a barrel, while US West Texas Intermediate (WTI) crude rose 49 cents, or 0.71 per cent, to $69.09, after falling earlier in the session to $63.64, the lowest since December 2, 2021.

Oil prices have plunged more than 8 per cent this week on concerns of the US economy and signs of weak manufacturing growth in the world's largest oil importer China, while also sliding further after the US Federal Reserve raised interest rates on May 3.

The US central bank led by chair Jerome Powell raised the target range for the federal funds rate to 5 to 5-1/4 percent, continuing on its path to achieve maximum employment and an inflation rate of 2 per cent.

After the interest rate hike, investors worried about a weakening global economy that could dent energy consumption. The move weighed on oil prices as Brent futures fell 76 cents or 1.1 per cent to $71.57 a barrel and US WTI dropped 1.5 per cent to $67.60 a barrel. Both benchmarks have fallen over 10 per cent since the start of this week.

Russia to stick to oil output cut till year-end


The Organization of the Petroleum Exporting Countries (OPEC)and allies including Russia - the OPEC+ cartel, started voluntary oil output cuts at the beginning of this month. Lower oil supply could mean tighter markets and higher oil prices in the long run.

Earlier in the day, Russia's Deputy Prime Minister Alexander Novak announced that Russia is abiding by its voluntary pledge to cut oil output by 500,000 barrels per day (bpd) from February until the end of the year. Novak added that a two-thirds reduction in Russia's oil pipeline exports to the European Union was only partially compensated by sea-borne exports.

Russia is the world’s biggest exporter of crude and oil products combined and produces over 10 million barrels of oil per day. Before Russia’s invasion of Ukraine, the European Union imported 2.2 million barrels per day of crude oil from Russia and 1.2 million bpd refined oil products, according to the International Energy Agency (IEA) - a Paris-based agency gathering of the 31 mostly industrialised countries and much of the EU.

 

 

Where are oil prices headed?

 

The US Fed has signaled that it may pause further interest rate increases to give officials time to assess the fallout from recent bank failures and to gain clarity on the dispute over raising the debt ceiling. The market has seen some support from this stance.

For further rate hikes, chair Jerome Powell the Fed will take a data-depended approach to determine the rate decisions ahead.

"With the Fed possibly pausing, the debt ceiling hopefully resolved this month, the OPEC+ cut felt in a few weeks' time and global demand picking up in the second half of the year, we are growing in conviction that the question is not how low oil prices will fall, but how long," said oil broker PVM's Tamas Varga, according to Reuters.

Analysts largely predict that after the OPEC+ supply cut, oil prices may again surge to the levels of $100 per barrel later this year, last seen in July 2022. Investors are also awaiting developments from the European Central Bank, which is set to raise interest rates for the seventh meeting in a row.