Oil heads for biggest weekly drop since early November despite gain on OPEC+ decision; Brent at $78/bbl

Oil prices rose slightly on Friday, February 2, after the Organisation of Petroleum Exporting Countries and its allies (OPEC+) decision to keep its production policy unchanged, but the benchmarks remained on track for weekly losses on China demand growth fears. Oil is headed towards the biggest weekly loss since early November as negotiations advance for an agreement to pause the Israel-Hamas war in what could be a crucial step toward ending the conflict.

Brent crude futures were up 27 cents, or 0.3 per cent, at $78.97 a barrel and US West Texas Intermediate crude futures gained 23 cents, or 0.3 per cent, to $74.05. The Brent benchmark had approached $85 a barrel in Monday trading.

Also Read: OPEC+ sticks with oil production cutbacks for first quarter to prevent surplus amid weak demand

West Texas Intermediate traded in a narrow range around $74 a barrel, putting it on track for a weekly drop of about five per cent. Talks on a ceasefire and hostage release are still in the early stages, according to a report by Bloomberg.

Meanwhile, Yemen-based Houthi militants continue to target merchant shipping in the Red Sea region, and the US has been hinting at its response to a drone assault that killed American troops in Jordan.

A report by news agency Reuters said that two OPEC+ sources claim that the group would decide in March whether or not to extend voluntary oil production cuts in place for the first quarter, after a ministerial panel meeting made no changes to the group’s output policy.

OPEC+ currently has 2.2 million barrels per day (bpd) of voluntary oil production cuts, announced in November. Oil prices had climbed in earlier trading after Federal Reserve Chair Jerome Powell said on Wednesday that interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained economic growth. Lower interest rates and economic growth help oil demand.

Powell declined to promise that rate cuts would come as early as the Fed’s March 19-20 meeting, as investors had hoped. He cautioned that the Fed’s struggle to lower inflation is not over, noting “we are not declaring victory, we think we still have a way to go.”

The Fed’s interest rate target is “likely at its peak for this tightening cycle” and the Fed will likely cut rates “at some point this year,” Powell said, while adding it will still take time to see if the data supports an easing in monetary policy.

The US also released on Thursday data showing worker productivity grew faster than expected in the fourth quarter, keeping unit labor costs contained and giving the Fed another boost in the fight against inflation. US manufacturing stabilized in January amid a rebound in new orders, but inflation at the factory gate picked up, showed US government data.