Analysts say oil markets are having a hard time predicting the direction of the global economy, how fast it will slow down and how it will affect oil demand.
Last week was a bad week for oil as economic concerns came to the fore. US benchmark West Texas Intermediate fell 9.1% in a week to settle at $89.01 a barrel on Friday.
Vandana Hari, founder and CEO of Singapore’s Vanda Insights, said oil prices appear to have no clear direction given competing economic signals. After raising interest rates to their highest level in 27 years to combat inflation, the Bank of England has become the latest to warn of a possible recession.
But in the US, employers continue to hire at a breakneck pace, adding more than half a million jobs in July, the Labor Department reported Friday.
“The market has no idea how much demand will be affected as a result of the slowdown in the global economy,” Hari said.
The Organization of the Petroleum Exporting Countries and the International Energy Agency could provide some clues when they release their August monthly market report later this week. OPEC left unchanged its forecasts for both economic growth and demand in his July report.
“The IEA and OPEC monthly reports will shift the focus to what is overshadowing the demand outlook,” said Paul Hicken, director of S&P Global Commodities Insights. “Demand disruption and macro concerns seem to be the drivers, but wildcards such as the US hurricane season or Chinese demand could change momentum at any moment.”
The National Hurricane Center shows an Atlantic disturbance that could turn into a tropical storm by midweek. It’s too early to know how the storm could intensify and pose a threat to oil and gas facilities in the Gulf of Mexico.
The start of oil trading week will also be impacted by progress on the Capitol Hill on the so-called Inflation Reduction Act, a 755-page bill that includes everything from expanding health insurance coverage for seniors to supporting green energy. may receive.
Lawmakers clocked in at length over the weekend, introducing and withdrawing various amendments. It could be a long and tumultuous political week before Congress goes on summer break.
The Labor Department on Wednesday will provide another snapshot of inflation when it releases its consumer price index for July. Economists at the University of Michigan will give an early analysis of consumer sentiment over the weekend.
Caroline Bain, chief commodities economist at Capital Economics in London, said inflation was a lingering concern and the main factor to watch. For her, last week’s plunge in oil prices was a bit of an anomaly.
“The big picture is that the market may be pricing in undue recession fears,” she said.