The past week has been rough for oil prices, with crude futures ending the week with their third consecutive week of losses. The S&P 500 Energy Select Sector ETF (XLE) also experienced a decline of 5.7%. The downward trend was largely attributed to recession fears, which were compounded by the Federal Reserve's decision to raise interest rates by 25 basis points on Wednesday.
The regional banking turmoil added to the pressure on oil prices. According to Tom Kloza, OPIS global head of energy analysis, any financial market turmoil would have a ripple effect on the oil industry. FHN Macro Strategist Will Compernolle echoed this sentiment in a note to investors, stating that "energy price movements are consistent with rising market expectations for a recession."
The recently released Weekly Petroleum Status Report by the EIA showed a decline in demand for gasoline and jet fuel for the week ending April 28th. While the reopening of China's economy is expected to boost demand, the market has not seen a linear increase. China's factory activity unexpectedly cooled in April, dampening demand expectations.
Despite the challenges, BP's Chief Financial Officer Murray Auchincloss remains optimistic about oil prices. He believes that the Chinese story from an industrial capacity perspective is still unfolding throughout the year, and this will have a positive impact on oil prices in the long run.
On Friday, West Texas Intermediate (WTI) and Brent crude futures experienced a rebound, gaining 4.1% and 3.9%, respectively. However, they still ended the week with a decline of 7.1% and 5.3%, respectively.
The current volatility in the oil market underscores the need for investors to stay vigilant and informed. While there may be short-term fluctuations in prices, a long-term perspective is necessary to make informed investment decisions.
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