Americas News
WTI Down over 7% For The Week As Recession Fears Kick Into Overdrive
An emerging oil rally in the previous session proved to be fleeting, as traders on Friday abandoned concerns about the tight global physical market and resumed their hand-wringing about recession, the result being a price drop in the commodity and another weekly loss for two key benchmarks.
The switch in concerns was triggered by news that although China's Covid infection total is small after a week-long holiday, the Communist Party government is still pursuing a zero-infection policy that continues to crush economic activity – and in turn oil demand.
Trading on Friday was also negatively affected by the U.S. dollar index rising 0.7 percent, making oil more expensive for buyers using other currencies.
Brent dropped $2.94 to settle at $91.63 per barrel, while West Texas Intermediate fell $3.50 to settle at $85.61; the latter benchmark was down 7.6 percent for the week.
Ed Moya, senior market analyst at Oanda, said, "All the major crude demand stories are turning very bearish for crude; so far earnings season and inflation expectations support the idea that the Fed will have to continue tightening until they send the economy into a recession."
Stacey Morris, head of energy research at VettaFi, added, "After last week's run up, it feels like oil prices have been plagued with a sell-the-news trade this week, [and] recession concerns and the related demand impact are going to remain in focus."
But Bloomberg noted that signs of trading activity picking up are emerging: "Brent open interest climbed to its highest level since March this week, while there has also been a flurry of bullish option flows and the start of Mexico's secretive annual oil hedge."
In other oil related news on Friday, Canada's heavy crude prices plunged to their biggest discount to futures since 2018: Heavy Western Canadian Select's discount to West Texas Intermediate widened $1.50 to $32.50/bbl at Hardisty, Alta.
The growing price discount was attributed to a host of factors, including maintenance and emergency shutdowns of major U.S. refineries in the Midwest, and shipping disruptions on the Mississippi River, plus Canadian crude being exposed to discounted Russian barrels (India has cut its imports of Canadian oil by almost half since May in favour of Russian crude).
Meanwhile, Energy Aspects on Friday warned that the U.S. might not be able to satisfy the global demand for more oil: in a note to clients it warned that production from shale basins is at risk of peaking in just two years, as drillers combat rising costs.
Energy Aspects also noted that at least five producers are considering cutting rigs at the start of the year, while none plan to boost activity substantially.
