Western Texas Intermediate (WTI) prices have surged to one-week highs near $79.30 on Friday, driven by rising demand optimism in China. China, one of the world’s largest crude-consuming nations, saw a 5.45% increase in crude oil imports in April compared to the same month last year. This encouraging improvement in demand has added momentum to WTI prices, signaling a positive outlook for the oil market. Additionally, the improved China Trade Balance data further supported the bullish trend for WTI.
The ongoing tensions and uncertainties in the Middle East have also played a significant role in boosting WTI prices. Israeli forces massed tanks and opened fire near built-up areas of Rafah, following President Joe Biden’s statement about withholding weapons from Israel in the event of a major invasion of the southern Gaza city. These geopolitical risks have raised concerns about oil supply disruptions, contributing to the upward trend in WTI prices.
Despite the positive factors driving WTI prices higher, the stronger US Dollar (USD) poses a potential limitation on the upside of USD-denominated oil. The hawkish stance of the US Federal Reserve (Fed) has supported the USD, with San Francisco Fed President Mary Daly highlighting the uncertainties surrounding the inflation outlook. This could create challenges for the oil market as policy projections become more difficult due to lack of clarity.
The combination of rising demand in China, Middle East tensions, and the influence of the USD on WTI prices creates a complex landscape for the oil market. While optimism about demand growth and geopolitical risks support higher prices, the potential impact of a stronger USD introduces a level of uncertainty. Going forward, market participants will need to closely monitor these factors to gauge the direction of WTI prices in the coming days and weeks.