Oil prices showed signs of stabilization on Thursday, rebounding from sharp declines experienced in the previous session, which followed a U.S. government credit downgrade. Despite the impact of the downgrade, concerns over supply tightness in the market continue to support crude prices.
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, have implemented output cuts that are expected to remain in place, further contributing to the reduction of oil inventories.
Brent crude futures inched up by 1 cent to reach $83.21 per barrel, recovering from earlier losses. Similarly, U.S. West Texas Intermediate crude rose by 6 cents to $79.55 per barrel.
Both benchmarks had previously achieved their highest levels since April 17 on Wednesday but closed down by 2% following the U.S. credit rating downgrade. Some analysts view the drop as an overreaction and anticipate a return to more stable market conditions soon.
Tamas Varga, an analyst at oil broker PVM, expects oil stocks to decrease significantly in the coming months. He suggests that the recent sharp drop in prices is likely to correct itself in the near future.
On Wednesday, Fitch, a ratings agency, downgraded the main U.S. credit rating due to expected fiscal deterioration and a growing government debt burden. This downgrade led to a decline in investor risk appetite, impacting oil and global stock markets.
Despite these recent developments, oil analysts remain optimistic about supply conditions. The Energy Information Administration reported a significant decrease of 17 million barrels in U.S. crude inventories last week, the largest drop in inventories since 1982.
While the oil market is expected to remain tight in the short term, some analysts caution that prices could still be susceptible to further declines. Edward Moya, an analyst at OANDA, suggests that the recent steady rise in oil prices might have left the market vulnerable to deeper drops.
In addition to supply concerns, global inflationary pressures are also influencing market dynamics. The Bank of England made a widely anticipated move to raise interest rates from 5% to 5.25%, reaching a 15-year high, as a measure to curb persistently high inflation.
As the market navigates through supply uncertainties and global economic factors, investors and analysts are closely monitoring developments to gauge the trajectory of oil prices in the coming days. With supply tightness and geopolitical factors at play, the oil market remains susceptible to volatility, and participants are advised to remain vigilant in their investment strategies.
