Dollar Strength and Economic Concerns
A strengthening U.S. dollar is capping oil price gains, as a robust greenback typically dampens demand for dollar-denominated oil from foreign buyers. The dollar’s climb follows stronger-than-expected U.S. labor market and manufacturing data earlier in the week.
Adding to the bearish sentiment, China’s economy grew at a slower-than-anticipated 4.7% in the second quarter. This underwhelming performance has sparked concerns about oil demand from the world’s top importer.
Supply Factors Provide Support
Despite these headwinds, supply-side factors have helped limit losses. Worsening wildfires in Canada are threatening production in the oil sands region, potentially tightening global supply. Additionally, the U.S. Energy Information Administration reported a larger-than-expected 4.9 million barrel decline in crude stockpiles for the week ended July 12.
OPEC+ Outlook
OPEC+ is unlikely to recommend changes to its current output policy at its upcoming online ministerial monitoring committee meeting on August 1. The group plans to start unwinding one layer of oil output cuts from October, gradually phasing out 2.2 million barrels per day over the course of a year.
Japan’s Inflation and Interest Rates
In other economic news, Japan’s core inflation increased in June, potentially paving the way for an interest rate hike in this major oil market. This development could influence oil demand in the region.
Market Forecast
The short-term outlook for oil prices remains cautiously bullish. While economic concerns and dollar strength are exerting downward pressure, supply constraints and steady U.S. demand are providing support. Traders should closely monitor upcoming economic data, particularly from China, and any shifts in OPEC+ policy for potential market-moving catalysts.
