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Oil sees modest weekly gains despite economic headwinds

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2024-02-19

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Small weekly gains were seen in oil prices last week, despite challenges such as a firmer US dollar, higher US bond yields, and a significant increase in weekly US inventories (up 12 million barrels).

However, uncertainties loom regarding the sustainability of these gains, as concerns about US inflation and the prospect of prolonged higher interest rates, coupled with the strength of the US dollar and near 4.3% US bond yields for the key 10-year Treasury security, resurface.

Friday witnessed crude futures, including Brent and West Texas Intermediate, posting weekly gains driven by escalating tensions in the Middle East, which overshadowed persistent inflation in the US and a murky demand outlook for the year.

Brent climbed 1.5% to $US83.47 for the week, while US WTI surged 3% to $US79.19 a barrel.

Both OPEC and the International Energy Agency (IEA) released their monthly reports on oil markets, with forecasts largely unchanged since January. While OPEC remains optimistic about demand, the IEA projects a potential slowdown.

Tensions escalated between Israel and Lebanon, raising concerns about the widening of conflict in the Middle East, particularly amidst retaliatory strikes and threats from Hezbollah.

The IEA's warning of a potential surplus in the crude market throughout 2024 highlights challenges ahead, with global oil demand expected to increase by 1.2 million bpd, half the rate of the previous year.

On the commodities front, gold prices were impacted by inflation pressures, a strong dollar, and rising US bond yields, with gold futures retreating to around $US2,000 an ounce despite a Friday uptick to $2,025 on Comex.

Mixed inflation figures for January indicated a gradual easing of inflation, contributing to a surge in bond yields, particularly the US 10-year T-bond, which reached 4.28%.

Industrial metals saw mixed movements, with Comex copper and silver gaining, while Newcastle thermal coal declined, and iron ore prices inched up in Singapore, albeit remaining below early January levels.

With China observing a holiday week, trading volumes were light, reflecting a complex landscape for commodities amid evolving economic dynamics.

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