The Oil headed for biggest weekly drop since early April due to growing evidence that a global economic slowdown is curbing demand, with prices near the lowest level in six months.
(Read: The dollar closed the week higher and above 4,330 pesos).
West Texas Intermediate rose above $89 a barrel as shares trimmed losses, but remained on track for a 9% weekly drop. Gasoline consumption in the United States fell, fueling concerns about demand, while low liquidity added to the volatility.
Supplies from Libya also rebounded, helping to narrow key time spreads in oil futures and ease market tension. The pullback is evident throughout the oil market. Gasoline futures fell 18% this week, a potential sign of further easing at gas stations.
Meanwhile, physical oil spreads were declining and the futures spread for the Brent closest to the next one fell to US$1.75 per barrel in backwardation, a bullish pattern in which short-term prices are higher than longer-term prices, down from more than $6 a week ago.
“Crude broke several technical levels in a week that has been a bloodbath for supercycle believers,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “However, the action indicates this was more of a buyer strike than a significant reduction in position as buyers are content to sit on the sidelines until the broader demand narrative improves.”
After skyrocketing in the first five months of the year, the rcrude rally has been reversed, with losses deepening this month after falls in June and July. The sell-off, which has been exacerbated by below-average trading volumes, may ease some of the inflationary pressures coursing through the global economy that have prompted central banks, including the US Federal Reserve, to raise rates. .
Still, there were some signs of optimism as Saudi Arabia raised its prices this week and OPEC+ warned of little spare capacity. Saudi Aramco raised its Arab Light grade for next month’s shipments to Asian refiners to a record $9.80 per barrel above the Middle East benchmark. Operators and refiners expected an even bigger jump.
The move to tighter monetary policy has stoked concern among investors that growth will slow, jeopardizing prospects for energy use. The Bank of England has warned that the UK is headed for more than a year of recession as borrowing costs rise, while in the US, a string of Federal Reserve members have vowed to continue a fight. aggressively to cool inflation.
(Read: Annual inflation in July stood at 10.21%).
China has also shown signs of weakness, clouding the outlook for the world’s crude consumption. main importer. Recent data showed factory activity contracted, while China Beige Book International warned the economy was deteriorating.
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