(Bloomberg) — Oil headed for a back-to-back weekly loss, burdened by demand concerns, rising stockpiles, and the possibility the Biden administration may make a fresh release from emergency reserves.
West Texas Intermediate edged toward $84 a barrel, but is still down almost 4% this week after hitting the lowest since January. There’s concern consumption will take a hit as central banks raise rates and China sticks to its Covid Zero strategy. The dollar’s rally to a record has also been a headwind.
Despite the current bout of market weakness, US officials are hunting for ways to head off a feared spike in oil prices later this year, including the possibility of an additional release from strategic crude reserves. The officials are warning of a potential increase in prices this December when EU sanctions on Russian energy supplies take effect, unless other steps are taken.
Crude has declined by nearly a third since its June highs as concerns over a global slowdown have gathered strength, overturning the rally triggered by Moscow’s invasion of Ukraine. On Thursday, Federal Reserve Chair Jerome Powell said that the US central bank was determined to curb price pressures, while the European Central Bank delivered a jumbo interest rate rise even as the region risks tipping into recession amid a worsening energy crisis.
The European Union’s crisis — driven by Russia choking off gas supplies and further EU curbs on crude — will be in focus on Friday as energy ministers gather in Brussels. They will be searching for steps to alleviate the damage caused by the standoff with Moscow. Earlier this week, President Vladimir Putin threatened to cut off energy supplies to nations backing a plan to cap prices.
Crude’s slump this week presents a challenge for the Organization of Petroleum Exporting Countries and its allies after they announced a nominal output cut at the start of the week, which triggered a short-lived rally. The reduction surprised many traders, who had expected OPEC+ no change.
“While oil markets are facing negative sentiment in the short term, OPEC+ production cut expectations could support the price,” said Charu Chanana, market strategist at Saxo Markets Singapore Pte. The producer group “hinted earlier this week at the intention to keep crude oil prices around the $100-mark,” she said.
On Thursday, US government data showed a large buildup of crude inventories, which swelled by a greater-than-expected 8.8 million barrels. At the same time, a gauge of gasoline demand sank below 2020 seasonal levels.
Widely-watched time spreads have narrowed, signaling an easing of market tightness. Brent’s prompt spread — the difference between its two nearest contracts — was at 98 cents a barrel in backwardation, down from $1.21 a barrel last Friday, and almost $2 two weeks ago.
This week’s MLIV Pulse survey focuses on energy and commodities. It’s brief and anonymous. Please click here to share your views.
©2022 Bloomberg L.P.