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China needs to show a serious jump in the number of barrels it's buying - or at least muster enough positivity on its economy to show that the top oil importer still has what it takes to get the market moving.
Crude prices settled Fri's trade higher, extending their rebound from Thu. But the two-day rise was too late and too little to make up for the losses in the first three days of the week.
Brent crude finished the session up 0.8% at USD84.80, extending the prior day's run by a similar percentage. For the week, Brent was down 2.8% after a 7-week rally that gave oil bulls an 18% return and a seven-month high of USD88.10.
WTI crude settled the latest session up 1%, at USD81.25, extending Thu's 1.3%. But the 4.6% drop from Mon through Wed still left WTI down 2.3% on the week.
That was a breakaway from a previous 7-week rally triggered by a bull fervour over Saudi production cuts that lifted the U.S. crude benchmark by 20% in that period, resulting in a 9-month high of USD84.89.
U.S. oil demand has remained stable over the past few months, but markets have feared a potential decline in fuel consumption, especially as the end of the summer season approaches.
"We believe that there is still room for the market to move higher. Our balance sheet suggests that the oil market will continue to tighten as we move through the second half of the year with a deficit in the region of 2MMbbls/d," said analysts at ING, in a note.
"We have left our forecasts for the remainder of the year unchanged. We still expect ICE Brent to average USD86/bbl over 3Q23 and USD92/bbl over 4Q23."
Still, weighing on crude prices are concerns that the Fed is not quite finished with hiking interest rates to tackle inflation, especially after the release of hawkish Fed minutes this week.
Resilience in the U.S. economy has helped the U.S. dollar post strong gains this week. Strength in the greenback also weighed on oil prices, given that it makes crude more expensive for international buyers.
That makes any crude price projection depend largely on what China does - or doesn't do.
The world's second largest economy has been grappling with a slowing post-COVID economic recovery, exacerbated by weakness in its important property sector.
This has raised concerns that this lower economic activity would hit demand for crude from a country that was meant to pick up a lot of the slack that tight monetary policies in the West have generated.
The People's Bank of China unexpectedly cut short and medium-term lending rates earlier this week, but investors are calling on more targeted, fiscal measures to support the economy.
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