Oil prices edge higher, interest rate outlook limits gains
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[February 06, 2023] By
Noah Browning
LONDON (Reuters) -Oil prices inched higher on Monday, recovering from an
8% fall last week to more than three-week lows, driven by expectations
slower growth in major economies may limit fuel use.
Brent crude futures rose 17 cents, or 0.2, to $80.11 a barrel at 0946
GMT, while U.S. West Texas Intermediate (WTI) crude futures slipped a
cent to $73.38.
Last Friday, WTI and Brent slid 3% after strong U.S. jobs data raised
concerns the Federal Reserve would keep raising interest rates, which in
turn boosted the dollar.
A stronger dollar typically reduces demand for dollar-denominated oil
from buyers paying with other currencies.
While recession fears dominated the market last week, on Sunday
International Energy Agency (IEA) Executive Director Fatih Birol said
China's recovery remains a driver for oil prices.
The IEA expects half of global oil demand growth this year to come from
China, where Birol said jet fuel demand was surging.
Depending on how strong that recovery is, he said the Organization of
Petroleum Exporting Countries (OPEC) and allies, together called OPEC+,
may have to reassess their decision to cut output by 2 million barrels
per day through 2023.
"If demand goes up very strongly, if the Chinese economy rebounds, then
there will be a need, in my view, for the OPEC+ countries to look at
their (output) policies," Birol told Reuters on the sidelines of a
conference in India.
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Pump jacks operate at sunset in an oil
field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford
Higher interest rates, however, are checking price gains, as they
are likely to curtail economic growth and increases in fuel demand,
say analysts.
"We are not seeing any big evidence of a China domestic demand
rebound yet, though mobility numbers are encouraging. Hence,
concerns about central banks' rate hike cycles and higher for longer
interest rates remains the key drag on oil prices after falling more
than 7% last week," said Suvro Sakar, lead energy analyst at DBS
Bank.
Price caps on Russian products also took effect on Sunday, with the
Group of Seven (G7), the European Union and Australia agreeing on
price limits of $100 per barrel on diesel and other products that
trade at a premium to crude, and $45 per barrel for products that
trade at a discount, such as fuel oil.
(Additional reporting by Sonali Paul in Melbourne and Emily Chow in
Singapore; Editing by Kenneth Maxwell, Christian Schmollinger, Kim
Coghill and Barbara Lewis)
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