Oil headed for a back-to-back weekly loss, burdened by demand concerns, rising stockpiles, and the possibility the Biden administration may make a fresh release from emergency reserves.
West Texas Intermediate dropped toward $83 a barrel, down more than 4% this week after hitting the lowest level since January. There’s concern consumption will take a hit as central banks raise rates and China sticks with its Covid Zero strategy. The dollar’s rally to a record has been an added headwind.
Despite the current bout of weakness, US officials are hunting for ways to head off a feared spike in oil prices later this year, including the possibility of an additional release from strategic crude reserves. The officials are warning of an increase in prices this December when EU sanctions on Russian supplies take effect unless other steps are taken.
Crude has declined by nearly a third since its June highs as concerns over a global slowdown have gathered strength, overturning the rally triggered by Moscow’s invasion of Ukraine. On Thursday, Federal Reserve Chair Jerome Powell said that the US central bank was determined to curb price pressures, while the European Central Bank delivered a jumbo interest rate rise even as the region risks tipping into recession amid a worsening energy crisis.
The slump in prices presents a challenge for the Organisation of Petroleum Exporting Countries and its allies after they announced a nominal output cut at the start of the week, which triggered a short-lived rally. The reduction surprised many traders, who had expected OPEC+ to hold supply steady.
Prices:
WTI for October delivery fell 0.4% to $83.25 a barrel on the New York Mercantile Exchange at 8:32 a.m. in Singapore.
Brent for November settlement eased 0.2% to $88.97 a barrel on the ICE Futures Europe exchange.
Prices have dropped 4.4% so far this week.
On Thursday, US government data showed a large buildup of crude inventories, which swelled by a greater-than-expected 8.8 million barrels. At the same time, a gauge of gasoline demand sank below 2020 seasonal levels.
Widely-watched time spreads have narrowed, signalling an easing of market tightness. Brent’s prompt spread — the difference between its two nearest contracts — was at 94 cents a barrel in backwardation, down from $1.21 a barrel last Friday, and almost $2 two weeks ago.
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