US inflation data reflects optimism about demand, offsetting rising OPEC supply concerns
Oil prices edged higher on Friday following data showing a general slowdown in US inflation, boosting the likelihood of increased demand and offsetting supply concerns as OPEC+ shows a tendency to resume production increases.
US CPI data is boosting risk appetite by pointing to the potential for further rate cuts. OPEC+ may resume oil production increases from April onwards, potentially impacting summer fuel demand.
Investors are closely watching US-Iran talks and the easing of Venezuela sanctions, while also focusing on next week's Russia-Ukraine peace talks.
Brent crude futures closed up 23 cents, or 0.3%, at $67.75 a barrel, while WTI crude rose 5 cents, or 0.08%, to $62.89.
Both indicators posted weekly declines after losses of approximately 3% on Thursday. Brent fell about 0.5%, and WTI about 1%.
Consumer prices in the US rose less than expected in January due to cheaper gasoline prices and a slowdown in rent inflation, and inflation appears to be stabilizing. Therefore, a further slight decrease in interest rates is likely to have a positive impact on prices. And lower interest rates would be a positive development for the economy. However, the possibility of OPEC increasing production further will negatively affect prices.
Prices fell earlier in the session as investors reacted to news that OPEC is moving to increase oil production starting in April, and as crude oil prices rose due to tensions in US-Iran relations.
On the US supply side, Baker Hughes reported that oil drilling rigs fell by three this week to 409.
Oil prices had strengthened earlier in the week on concerns that the US might attack Iran over its nuclear program. However, Trump's comments on Thursday that Washington could reach an agreement with Iran next month brought prices down.
Meanwhile, Russia said on Friday that the next round of peace talks regarding Ukraine will take place next week. Extensive crude oil sanctions imposed on Russia may mostly push Russia towards a preference for processing and utilizing its crude oil.
Negotiations with Iran and Russia will move the market in the short term. Global crude oil supply is abundant in the short term, and crude oil futures are likely to contain a geopolitical premium of $5 to $7 per barrel.
The U.S. also eased sanctions on Venezuela’s energy sector on Friday, issuing two general licenses allowing global energy companies to operate oil and gas projects in the OPEC member country and for other companies to negotiate contracts to bring in new investments.
The U.S. said that oil sales from U.S.-controlled Venezuela have already exceeded $1 billion and are expected to bring in another $5 billion in the coming months.
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