Oil Incurs Biggest Quarterly Percentage Declines Since Start Of Covid Pandemic

And Fed interest rate hikes will make things worse, analysts insist: File Image/Pixabay

Oil traders continued to indulge their fears of a demand erosion on Friday by causing two key benchmarks to log another weekly decline of about 1 percent, influenced partly by a strong run of the U.S. dollar – which, however, doesn’t account for West Texas Intermediate and Brent declining about 20 percent in the third quarter, the biggest quarterly percentage declines since the start of the Covid pandemic.

However, the benchmarks eked out modest daily gains on Friday on word that Thursday night’s oil spill at Iraq’s Basra terminal was contained and exports are gradually being resumed - although lingering disruptions are likely.

Brent climbed 70 cents at $91.54 per barrel by 1743 GMT, while WTI gained 30 cents to $85.40 per barrel.

John Kilduff, founding partner at Again Capital, said of the spill, “That definitely threw a scare into the market because the initial report was that those barrels were going to be out of the market for some time.”

Sure to influence trading next week is an expected large increase to U.S. interest rates intended to curb inflation but that analysts worry will lead to an outright recession and ruin fuel demand; the Federal Reserve may raise its benchmark interest rate by 75 basis points during its policy meeting next Tuesday.

This caused Stephen Brennock, analyst at PVM, to state, “Recession fears coupled with higher U.S. interest rate expectations made for a potent bearish cocktail.”

Still, dwindling expectations of a nuclear deal being achieved with Iran support the contention that the physical market will remain tight and support prices, and that support could intensify in the fourth quarter if the Organization of the Petroleum Exporting Countries (OPEC) makes good on its threat to cut production.

Meanwhile, the deep divide between analysts who think demand ruin is inevitable and those who lean toward fundamentals and think it will remain robust was augmented on Friday by a view that accommodated both sides.

Norbert Rucker, head of economics at Julius Baer, said, “We still see demand growth, mainly in emerging markets, but we also see stagnant demand in the western world and China.”

Neil Crosby, senior oil analyst at OilX, added in reference to the difference between the drastic and moderate downgrading forecasts that have caught media attention of late, “Nobody is acutely wrong per se, but inevitably at some stage these two signals will have to converge and likely somewhere in the middle.”

As for the latest on the continuing saga of the upcoming sanctions against Russia for invading Ukraine and their potential efficacy, Kpler in a research note on Friday said the former Soviet Union could find new markets for about half of the crude exports that will be banned by the European Union from December.

Specifically, Indonesia, Pakistan, Brazil, South Africa, Sri Lanka, and some countries in the Middle East could together buy as much as 1 million barrels per day of crude this coming winter.