business
Friday Nov 18 2022
By
Reuters

Oil prices slide as supply fears recede

By
Reuters
Pumpjacks are seen during sunset at the Daqing oil field in Heilongjiang province, China August 22, 2019. Picture taken August 22, 2019. — Reuters
Pumpjacks are seen during sunset at the Daqing oil field in Heilongjiang province, China August 22, 2019. Picture taken August 22, 2019. — Reuters

  • Brent hits lowest since September 28.
  • Chinese demand and COVID cases in focus.
  • Fed interest rate signals dampen sentiment.


LONDON: Oil fell by more than $3 a barrel on Friday and was on track for a second weekly decline, pressured by concern about weakening demand in China and further increases to US interest rates.

As part of the rout, the market structure of both oil benchmarks shifted in ways that reflect dwindling supply concerns. Crude had come close to record highs this year as Russia's invasion of Ukraine added to those concerns.

China, which sources say is looking to slow crude imports from some exporters, has seen a rise in COVID-19 cases while hopes for less aggressive US rate hikes have been dented by remarks from some Federal Reserve officials this week.

"As things stand, bullish price drivers are in short supply," said Stephen Brennock of oil broker PVM. "Yet with the EU embargo on Russian crude less than three weeks away, oil prices could still end the year with a bang."

Brent crude was down $3.17, or 3.5%, at $86.61 a barrel by 1445 GMT, having touched its lowest since Sept. 28 at $85.80. U.S. West Texas Intermediate (WTI) crude was down $3.67, or 4.5%, at $77.97.

Both benchmarks are heading for a second weekly loss, with Brent on track for a more than 9% decline.

In a sign of easing concern about supply, the nearby WTI contract moved to a discount to the second month , a structure known as contango, for the first time since 2021, Refinitiv Eikon data showed.

Brent was still in the opposite structure, backwardation, though the premium of nearby Brent over barrels loading in six months fell as low as $3 a barrel, the lowest since April.

Recession concerns have dominated this week, even with the European Union's ban on Russian crude looming on December 5 and a tightening of supply by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+.

"On the demand side, there are concerns about an economic slowdown," said Avatrade's Naeem Aslam. "The path of least resistance seems skewed to the downside."

The Fed is expected to raise rates by a smaller 50 basis points (bps) at its December 13-14 policy meeting after four consecutive 75 bps hikes, a Reuters poll showed.

OPEC+, which began a new round of supply cuts in November, holds a policy meeting on December 4.