crude oil prices were close to their lowest point in six months, and oil was on track for its worst weekly loss since early April due to mounting indications that the global economic slowdown is reducing demand.
On Friday, West Texas Intermediate was little changed below $89 per barrel and was down around 10% for the week. US petroleum stocks have grown while gasoline consumption has declined. The supply from Libya has increased, which has helped to reduce important oil futures’ time spreads and improve market tightness.
There has been widespread retreat. Additionally, gasoline futures are down 10% this week, which may indicate further respite at the pump. Physical oil differentials have decreased, and Brent’s prompt spread—the difference between the two contracts that are closest to one other and serves as a barometer for the state of the supply—was $1.79 a barrel in backwardation, down from over $6 a week ago.
Crude’s uptrend, which had risen for the first five months of the year, has been put into reverse, with losses widening this month after drops in June and July. The sell-off, which has erased gains brought on by Russia’s invasion of Ukraine, will lessen the inflationary pressures roiling the world economy and forcing central banks like the US Federal Reserve to raise interest rates.
This week’s drop “has started to cause panic in many who were previously dedicated oil bulls,” said Keshav Lohiya, founder of consultant Oilytics. “Some market participants have started to price in the possibility of contango entering the market with the recent selloff, despite a relatively strong healthy physical market.”
Even so, there were some encouraging indications this week, with Saudi Arabia raising its pricing and OPEC+ issuing a warning about the limited spare capacity. For supplies to Asian refineries in the following month, Saudi Aramco raised the price of Arab Light to a record $9.80 a barrel over the Middle Eastern benchmark. Trading companies and refiners had anticipated a greater increase.
Investors are worried that GDP may stall as a result of the switch to a much tighter monetary policy, endangering the forecast for energy consumption. As it increased borrowing costs, the Bank of England issued a warning that the UK will experience a recession lasting longer than a year. Meanwhile, in the US, a string of Federal Reserve speakers vowed to keep up a vigorous campaign to contain inflation.
The prognosis for crude consumption in the top importer is clouded by hints of slowdown in China. Recent statistics showed decreased industry activity, and China Beige Book International issued a dire economic forecast.