Oil Achieves Weekly Gain As China Capitalizes On Soaring Energy Prices

Russia also continued to circumnavigate effects of West embargoes: File Image/Pixabay

Federal Reserve chair Jerome Powell signalling that the U.S. central bank will probably continue to raise interest rates  combined with the aftermath of warnings that the Organization of the Petroleum Exporting Countries (OPEC) may reduce oil output to better align prices with fundamentals resulted  in mixed crude trading on Friday – but a weekly gain was still achieved.

West Texas Intermediate for October delivery fell 54 cents to settle at $93.06, while Brent for October settlement rose $1.65 to $100.99; the weekly gain for WTI was calculated at 2.5 percent and for Brent 4.4 percent.

Ed Moya, senior market analyst at Oanda, pointed out that "Powell reminded Wall Street that restrictive policy is required but we are not there yet, so recession fears and a deteriorating crude demand outlook is not warranted yet."

Powell said in remarks prepared for a policy forum, "Restoring price stability will likely require maintaining a restrictive policy stance for some time; the historical record cautions strongly against prematurely loosening policy."

The latest thoughts on Saudi Arabia's remarks that OPEC could downsize production were supplied by Commerzbank, which said in a note, "The impression remains that Saudi Arabia is not willing to tolerate any price slide below $90; speculators could view this as an invitation to bet on further price rises without the need to fear any more pronounced price declines."

Despite a week that saw bearish sentiment steadily erode crude's price advance, high prices still dominate the global market and provide a wealth of opportunities for producers, case in point: Cnooc Ltd. of China more than doubled its first half profits compared to the same time last year, posting 71.9 billion yuan ($10.5 billion) compared to 33.3 billion yuan, based on production of 304.8 million barrels of oil and gas.

Cnooc has the most direct exposure to global energy prices because it lacks the massive fuel refining and marketing business of China's other two state-owned oil producers, Sinopec and PetroChina Co. 

But while energy giants profited from soaring prices, end users continued to suffer: Ofgem, the UK's energy regulator, on Friday announced it will raise its main cap on consumer energy bills to an average £3,549 ($4,197) from £1,971 per year; earlier this month the regulator said it will recalculate the cap every three months rather than every six months to reflect current market volatility.

Jonny Marshall, senior economist at the Resolution Foundation, remarked, "A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain.

"We are on course for thousands to see their energy cut off entirely, while millions will be unable to pay bills and build up unmanageable arrears."

Meanwhile, the latest chapter in how Russia continues to prevail despite the West's sanctions for its invasion of Ukraine was revealed Friday with Trafigura Group reportedly selling Russian fuel to Ecuador in advance of the European Union ban.

According to people with knowledge of the matter, Trafigura chartered the vessel Marlin Aventurine to deliver 262,000 barrels of diesel to Ecuador's state oil company Petroecuador; although Petroecuador typically buys fuels from U.S. refineries, the company said in a statement that "Ecuador has a deficit in the supply of oil products and our number one priority is to make up for that deficit."

However,  Petroecuador warned traders that it is not able to provide a letter of credit for oil of Russian origin and "the trader must assume that risk."