In the U.S., gas consumption rose despite a decrease in driving activity: File image/Pixabay
The price losses for oil escalated on Friday, ultimately leading to its first quarterly drop – by nearly 25 percent - since 2020 as fears of demand destruction caused by high interest rates and inflation intensified.
And yet, Bloomberg also reported on Friday that time spreads in U.S. oil futures between the nearest two December futures contracts was at its strongest level in a month: a sure sign that traders are growing more bullish on market outlook.
Also, it was learned from U.S. government data released on Friday that overall petroleum supplied (a proxy for demand) enjoyed its best July since 2019, and that demand for June reached a 16-year high – despite gasoline consumption falling 6 percent from a year ago.
Stephen Brennock, oil analyst, PVM
Expect oil prices to receive a supportive kick up the backside next week
West Texas Intermediate for November delivery fell $1.74 to settle at $79.49 per barrel, while the more-active Brent contract for December settlement dropped $2.04 to close at $85.14 per barrel (Brent and WTI were still set for a weekly gain of around 2 percent, the first rise since August).
Both benchmarks rose earlier in the session, but the downward spiral was said to have been precipitated by news that the Organization of the Petroleum Exporting Countries (OPEC)'s oil output rose in September to its highest since 2020, surpassing a pledged hike for the month.
Given that OPEC have begun discussions about an oil output cut in advance of their meeting next week, analysts think the cartel could withdraw anywhere between 500,000 to 1 million barrels per day (bpd) of supply.
Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, warned, "Next week's OPEC+ meeting is the next big catalyst but expect trading until then to be choppy and reactive to dollar moves."
Stephen Brennock, oil analyst at PVM, added, "Price swings have become the norm as market players juggle worries over the global economy and the prospect of tightening oil supplies.
"Expect oil prices to receive a supportive kick up the backside next week."
In related news on Friday, JLC said that refiners and traders in China have been given 15 million tons of new fuel quota, which could possibly be rolled over into the first quarter of next year, in a bid to provide a much needed demand boost to an economy that has been rendered all but inert thanks the government's Covid lockdowns and a housing slump.
The latest quota increases China's total allocation to 37.25 million tons this year, slightly less than 37.61 million tons issued in 2021, and critics said that the potential flood of added product into Asia has soured the outlook for refining margins for products such as diesel.