Oil Drops on Demand Fears, But Demand Appears Healthier Than Ever

Meanwhile, some analysts think the world can easily handle $150 oil: File Image/Pixabay

Oil prices dropped by the most in 2 weeks on Thursday due to concerns about global economic growth stemming from renewed lockdowns in Eastern Europe and Russia amid rising Covid cases.

Brent dropped $1.21 to settle at $84.67 per barrel, while West Texas Intermediate fell 92 cents to settle at $82.50 per barrel.

Ed Moya, senior market analyst at Oanda Corp., said, "There's been a little bit of loss of momentum and that's the real pain of the global economy."

Still, with Covid rates dropping dramatically elsewhere in the world and demand continuing to rise, overall sentiment remains bullish, bolstered on Thursday by the Energy Information Administration reporting that U.S. crude stocks fell by 431,000 barrels in the week to October 15 to 426.5 million barrels, compared with analytical expectations for a 1.9 million barrel rise.

Also, longer term tightness was indicated by U.S. stocks at the Cushing, Oklahoma delivery hub hitting their lowest level since October 2018.

Citi Research added in a note, "This trend is despite the autumn maintenance season, which is expected to loosen U.S. crude oil balances in Oct. 21."

The energy crunch took on even more import on Thursday when Russian president Vladimir Putin said curbs on investments in oil development could lead to shortages of crude in coming years.
Meanwhile, oil refiners are boosting output to meet rising demand across Asia, Europe and the U.S., and China revealed that its coal mines will operate at full capacity to help ease a power shortage.

However, at least one agency suspects all the recent hand wringing over climbing oil prices and a possible return of 1970s stagflation is for naught.

According to a Reuter's examination of data from several sources including JPMorgan, even with oil at $130 or $150, equity markets and the economy could function well since oil prices only become problematic when energy costs exceed 8.8 percent of global GDP (levels last seen in 2008).

Currently, energy's share is only 4.6 percent.