Flip-flop Oil Traders Boost Prices As U.S. Reports Strong Economic Growth

But analysts can't decide if the global outlook is positive or negative: File Image/Pixabay

Never a group known for sticking to their convictions, oil traders on Thursday forgot about their concerns of reduced demand spurred by inflation and/or recession and caused oil prices to rise about 2 percent, based on positive U.S. economic data.

After it was learned that the U.S. economy grew faster than expected in the fourth quarter but slower than the previous three months (suggesting the Federal Reserve's attempts to restrain growth without stopping it is working), Brent settled up $1.35, or 1.6 percent, at $87.47 per barrel, while West Texas Intermediate settled up 86 cents, or 1.1 percent, at $81.01.

Traders overlooked data that also showed domestic demand rose at its slowest pace in over 2 years, reflecting higher borrowing costs.

Still, this, combined with earlier news that U.S. crude inventories rose by only 533,000 barrels last week instead of an anticipated 1 million barrels, caused Edward Moya, senior market analyst at Oanda, to remark that "Crude prices got an unexpected boost from a U.S. economy that doesn't want to break."

Generally speaking, the market is awash with conflicting views on the state of global affairs and its effect on crude: a Reuters poll of economists pegged world economic growth as barely moving above 2 percent this year, suggesting that further downgrades are possible.

However, hedge funds and other money managers purchased the equivalent of 89 million barrels in the six most important petroleum contracts over the seven days ending Jan. 17, the fastest rate in over two years and a sign that fears about a global recession are easing somewhat.

Also, "China's reopening is supporting demand prospects," said UBS analyst Giovanni Staunovo.

More evidence that the world situation is better than one might think came in the form of Brent flipping from contango into backwardation, with the March contract surpassing April's: the shift to oil being more expensive in the near-term suggests that traders see demand outpacing supply.

The U.S. at least is making the most of the perception that the economy is improving, and indeed for that country the signs are compelling: it is at its lowest unemployment rate in 50 years, and over the past two years job growth has been at its strongest rate ever.

In his first economic speech of the new year, U.S. president Joe Biden on Thursday also pointed to a slowdown in the growth of consumer prices, which are still higher than they were a year ago, and he said, "I'm not sure the news could have been any better – economic growth is up stronger than experts expected, 2.9 percent."