Oil posts second straight weekly loss as Fed hints at more interest rate raises

The US economy is not cooling as expected, Jerome Powell says at the Jackson Hole symposium on Friday

Oil prices last week posted their first seven-day loss since June, snapping seven weeks of gains. Bloomberg

Oil prices settled higher on Friday but recorded their second straight weekly loss as US Federal Reserve chairman Jerome Powell indicated the possibility of further interest rate increases to curb inflation.

Brent, the benchmark for two thirds of the world’s oil, settled 1.34 per cent higher at $84.48 a barrel. West Texas Intermediate, the gauge that tracks US crude, closed up 0.99 per cent at $79.83 a barrel.

“Oil prices recovered a little towards the back end of the week after coming under some pressure this month,” said Craig Erlam, senior market analyst at Oanda.

“Supply cuts from Opec+ continue to support the market, but uncertainty over the global economic outlook – sluggish recovery in China, possible recession in the US and Europe – are weighing a little,” Mr Erlam said.

At the Jackson Hole symposium in Wyoming on Friday, Mr Powell said the Fed would continue to bring inflation down to its 2 per cent target.

The US economy is not cooling as expected, with stronger-than-anticipated gross domestic product growth and “especially robust” consumer spending, he said.

“We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down towards our objective.”

After pausing its tightening cycle in June, the Fed last month increased its policy rate for the 11th time since March 2022, as it aims to bring inflation down to its 2 per cent target range after prices hit a four-decade high in June 2022.

Higher interest rates dampen economic growth, lowering crude demand.

Oil prices last week posted their first seven-day loss since June, snapping seven weeks of gains, amid concerns about China’s economic growth and fears of further monetary tightening.

Meanwhile, China's central bank cut key policy rates for the second time since June to try to revive sagging economic growth.

The world’s second-largest economy officially fell into deflation, with consumer and producer prices declining in July compared to a year ago.

“Supply cuts and a more resilient global economy saw crude storm higher earlier in the summer, and while we are still seeing these to a large extent, which is why we haven't yet seen any major reversal, the latter is looking increasingly questionable,” Mr Erlam said.

Supplies could also receive a boost as a potential easing of sanctions in Venezuela would allow the country, which has the world’s largest crude reserves, to export its oil to more markets.

The US is in talks with Caracas to explore a temporary lifting of sanctions in exchange for fair elections next year, Bloomberg reported on Thursday, citing sources.

“There has been little in the manner of a fundamental catalyst to push prices substantially in one direction or another, with markets balancing supply coming back on from producers like Iran and, potentially, Venezuela, as well as uncertainty over China’s economic outlook, against the potential of Saudi Arabia extending its production cuts for the rest of the year,” analysts at Emirates NBD Research said on Friday.

On August 3, Saudi Arabia, the world's biggest oil exporter, said it was extending its voluntary oil production cut of a million barrels per day until September, a move aimed at supporting the stability and balance of oil markets.

The cut, which first took effect in July, could be further “extended and deepened” to support the stability and balance of oil markets, the ministry said.

“The kingdom is adopting a cautious approach after the weakness in oil markets over the first half of the year and will want to see global inventories significantly decline before starting to unwind the additional voluntary cuts,” Energy Aspects analyst Richard Bronze said.