Oil suffers deep weekly loss as concerns over demand intensify - BLOOMBERG
Oil headed for the biggest weekly decline since early April on increasing evidence that a global economic slowdown is curbing demand, with prices near the lowest level in six months.
West Texas Intermediate climbed near US$90 a barrel as equities pared losses, but remained on course for a 9 per cent weekly decline. US gasoline consumption dropped, stoking demand concerns, while low liquidity has added to volatility. Supplies from Libya also picked up, helping shrink key oil futures time-spreads and ease the tightness in the market.
The pullback has been broad-based. Gasoline futures are down 18 per cent this week, a potential sign of further relief at the pump. Meanwhile, physical oil differentials have narrowed and Brent’s prompt spread -- difference between its two nearest contracts and a gauge of supply -- narrowed to US$1.79 a barrel in backwardation, down from more than US$6 a week ago.
After surging in the first five months of the year, crude’s rally has been thrown into reverse, with losses deepening this month after declines in June and July. The selloff, which has been exacerbated by below-average trading volumes, will ease the inflationary pressures coursing through the global economy that have spurred central banks including the US Federal Reserve to hike rates.
“Crude broke several technical levels in a week that has been a bloodbath for super-cycle believers,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management. “The action however indicates that this was more of a buyers’ strike than meaningful position reduction, as buyers are content to sit on the sidelines until the broader narrative around demand improves.”
- WTI for September delivery added US$1.38 to US$89.92 a barrel at 10:33 a.m. in New York.
- Brent for October settlement gained US$1.39 to US$95.51 a barrel.
Still, there were some signs of bullishness with Saudi Arabia this week boosting its prices, and OPEC+ warning of scant spare capacity. Saudi Aramco increased its Arab Light grade for next month’s shipments to Asian refineries to a record US$9.80 a barrel above the Middle Eastern benchmark. Traders and refiners had expected an even bigger jump.
The shift to tighter monetary policy has stoked concern among investors that growth will slow, imperiling the outlook for energy usage. The Bank of England warned that the UK is heading for more than a year of recession as it raised borrowing costs, while in the US, a procession of Federal Reserve speakers pledged to continue an aggressive fight to cool inflation.
China has also shown signs of weakness, clouding the outlook for crude consumption in the top importer. Recent data showed factory activity shrank, while China Beige Book International warned the economy was deteriorating.