Oil Heads Towards Weekly Loss As Traders Fully Embrace Recession Scenario

Meanwhile, Russia has survived the sanctions, says Kemp: File Image/Pixabay

With crude traders all but fully convinced on Thursday that a hawkish U.S. Federal Reserve will jack up interest rates to the point it will cause a recession, oil prices once again suffered  losses similar to those of the previous session: about 1 percent.

Brent fell $1.07, or 1.3 percent, to settle at $81.59 per barrel, and West Texas Intermediate fell 94 cents, or 1.2 percent, to settle at $75.72.

So far for the week, Brent is down about 5 percent and WTI about 6 percent.

Edward Moya, senior market analyst at Oanda, said, "Decelerating growth continues to weigh on crude prices."

For his part, John Kilduff, founding partner at Again Capital, believed a U.S. bond auction Thursday afternoon "spooked the market" and "was the catalyst for the risk off sentiment."

Perversely supporting bearish proclivities is a robust U.S. economic profile: analysts expect 205,000 jobs were added last month (albeit a sharp drop from January numbers), contributing to an impressive 3.4 percent unemployment rate –  factors that have compelled the Fed to consider taking more drastic rate hike action.

Jonathan Golub, managing director at Credit Suisse, contributed to Thursday's gloom by predicting  an environment in which chronic inflation compromises the profit margins of business, prompting investors to shun stocks in favour of treasuries and other short-term debt (where some yields are at their highest levels in nearly two decades).

Investors will be closely watching U.S. employment data to be released on Friday as well as next week's consumer price report, which the Fed has said will determine whether further big rate hikes are warranted.

In other oil related news on Thursday, John Kemp, market analyst for Reuters, pointed out that the oil market has over the past year has absorbed the impact of Russia's invasion of Ukraine and the sanctions imposed by the U.S., the European Union, and Asia.

Kemp added, "Global petroleum inventories remain well below the prior ten-year seasonal average and there is little [unsanctioned] spare capacity in either the crude production or refining systems.

"If the global economy and petroleum consumption growth accelerate again, inventories and spare capacity will become critically low rapidly, contributing to the next price cycle; Conversely, if the global economy slides into a full-blown recession, inventories will rise and prices and spreads are likely to soften further."

Kemp concluded that for the time being however, "the oil market has returned to balance less than twelve months after one of the largest shocks since the World War Two."