Oil Dips For The Day, Gains On The Week As Traders Sway Between Bearish And Bullish Sentiment

Meanwhile, Iran's return to the world stage is predicted for early next year: File Image/Pixabay

Oil dipped on Friday as schizophrenic traders wrestled on one hand with near-term demand fears and on the other with the potential of demand escalating this winter.

Toss in more speculation that Iran could return to the world market, and that reinforces the numerous conflicting factors that led to Friday's daily losses being offset by oil posting the biggest weekly gain since April.

West Texas Intermediate fell 2.4 percent to settle at $92.09 per barrel (but ended the week 3.5 percent higher), while Brent shed 1.5 percent to $98.15 per barrel (but ended the week up 3.4 percent).

A main source of inspiration for traders on Friday was Rapidan Energy Group, which stated in a note that the U.S. and Iran have made enough incremental progress for a shift in the base case expectations for the timing of a nuclear deal, from the first quarter of 2023 to the fourth quarter of 2022.

But causing confusion in the market was the International Energy Agency and the Organization of the Petroleum Exporting Countries (OPEC): the former raised its forecast for global demand growth, thus supporting prices, but the latter trimmed its output forecasts based on the contention that the global market will tip into surplus this quarter – thus contributing to bearish sentiments.

Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, said, “My view is we move higher: demand numbers in the U.S. were better and we have priced in a lot of negative demand adjustments into the market at this point.”

Ole Hansen, head of commodity strategy at Saxo Bank, said, "We are seeing an economic slowdown, but it's unclear if it's as big a slowdown as some of the recent outlooks have been predicting; the demand will ebb and flow, but supply is still the main concern."

Another factor affecting Friday’s trading was the expectation that supply disruptions in the U.S. Gulf of Mexico would be fleeting: on Thursday Shell said it halted production at three deepwater platforms in the region that produce up to 410,000 barrels per day (bpd) combined, but by Friday the Amberjack pipeline was restarted at reduced capacity and the Mars pipeline was expected to resume operation later in the day.

Finally, the number of U.S. oil rigs rose three to 601 this week, according to Baker Hughes Co.; the count, which is an indicator of future output, has been slow to grow, and analysts think full pre-pandemic levels of output won’t return until next year.