The price of Brent crude ended the week at $79.87 after closing the previous week at $78.47. The price of WTI ended the week at $75.42 after closing the previous week at $73.86.

what's affecting oil prices

Prices were bolstered by the disruption to Libya oil production with production being shut down for two days at three fields (Sharara, al-Fil and the 108 field) in protest of the arrest of a former finance minister. Lost production was around 170,000 b/d. Production was restored on Sunday at two of the fields—Sharara and al-Fil.

Some recent news about the US economy provided some support for oil prices with the latest inflation report from the US Labor Department indicating that the inflation rate fell to 3.0% in June on an annual basis, which is the lowest level since March 2021. Additionally, the US Dollar Index ended the week at 99.91 from 102.27 of the previous week and is at the lowest level since April 2022.

The improvement in the sentiment of oil traders is another positive factor. The net long positions of traders of WTI increased for the second consecutive week with short positions being reduced, while long positions increased.  While net long positions remain relatively low  from a historical perspective, since OPEC announced the latest round of production cuts, the net long positions of WTI have increased by nearly 80%. The net long positions of traders of Brent also increased last week with long positions being increased, while short positions were reduced. 

The news on inflation, however, is not quite as good as the headlines imply. Core inflation (excludes food and energy) is still running at 4.8%. The Personal Consumption Expenditures price index, which is a favorite metric for the Federal Reserve is at 3.8%. Consequently, we still expect that the Federal Reserve will increase interest rates at its next meeting scheduled for July 25-26. The supporting rationale, besides that core inflation is still much higher than the 2.0% target, is that wage growth increased in May by 0.4% and by 0.3% in real terms. While real wages had declined for almost two years, the increase in May fits with the Federal Reserves’ fear of a wage-price spiral.

Additionally, the latest data indicate that China’s economy grew by 0.8% in 2Q in comparison to 1Q, and by 6.3% on an annual basis. While the rate of growth aligns with our expectation that China’s economy will grow by 5.10% during 2023, the rate of growth disappointed most forecasters.

Another negative factor pertains to the latest developments associated with the Russia-Ukraine conflict,  including the Ukrainian attack on the Crimean Bridge and the announced intention of Russia to withdraw from the Black Sea Grain Initiative.

For the upcoming week, we are expecting that the price of Brent crude will move toward the support level of $77.00.

For a complete forecast of refined products and prices, please refer to our Short-term Outlook.

About the Author: John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.