This week, oil could have ended with a gain after dropping for several weeks since early April when Brent peaked above $91.
On Friday, Brent initially rose above $84 on declining US inventory, climbing more than a dollar over the previous week. However, oil prices fell from the week's high as comments from U.S. central bank officials indicated a likelihood of higher interest rates for a longer period.
For the week, Brent crude futures settled at $82.79 a barrel, marking a 0.2% loss, while WTI recorded a 0.2% rise.
Looking ahead, oil will navigate between expectations of a robust US driving season, Chinese demand, and geopolitical factors in the coming week. Next week, U.S. inflation data could influence Fed decisions on rates.
In other development, at the start of the week, Saudi Arabia raised the price of its oil to customers in Asia, including China, ahead of an OPEC+ meeting on production targets next month. This marked the third consecutive monthly increase in Arab Light crude prices to Asia.
Additionally, China's oil imports rose in April compared to the previous year. It's worth noting that China's trade data indicated growth in both exports and imports for April, rebounding from a decline the month prior.
In broader context, oil prices have been on the rise since reaching a low of around $74 (Brent) in the middle of December last year, despite OPEC+ announcing on November 30, 2023, to maintain its reduced production quotas at 2.2 million barrels per day in response to weak oil prices.
Oil traders have been adjusting their price expectations based on various geopolitical issues, including tensions in the Middle East, disruptions in the Red Sea route, attacks on Russian oil refineries, and Iran sanctions. However, none of these factors have significantly increased the risk premium on oil. It continues to flow.
My sense is that China's oil demand and overall export data, arguably better indicators of global economic health, have had a more significant impact on recent oil price trends.
The one-year Brent price chart illustrates oil rises in red and declines in green, indicating their respective impacts on consumers. Note the decline even after the OPEC meeting and subsequent rise, followed by the fall in April this year.
In Pakistan, fluctuations in oil prices have the quickest impact on our economy, either by increasing or alleviating pressure on our external obligations and providing or reducing liquidity in the economic system. Therefore, this week's downward trend in oil prices could further alleviate domestic economic pressures.
However, any economic benefits are likely to be temporary in our case, as we continue to grapple with perennial structural economic issues such as high government expenditure and circular debt in the power sector. We have been peering into this abyss for quite some time now.
As Nietzsche said, 'if you gaze long into an abyss, the abyss also gazes into you.'
And now, this 'abyss' is gazing back at us.
