Crude oil prices recorded remarkable weekly losses, as Brent crude fell by 6.4% and US crude by 7.6% due to fears of a global recession and expectations of a slowdown in demand for crude oil, and losses exacerbated with the rise of the dollar, which has an inverse relationship with crude oil prices.
The international “Reg Zone” report stated that crude oil prices recorded a weekly loss, as measures to combat inflation and suppress Chinese demand have strained the oil market’s expectations.
The report noted that the US inflation rate jumped to a 40-year high last month, spurring expectations that the Federal Reserve will have to keep raising interest rates that could slow growth and potentially hurt energy consumption.
The report pointed out that, last week, crude oil prices abandoned some of the gains spurred by the decision of “OPEC” and its allies, “OPEC +”, which agreed to cut production sharply next November, pointing to the suffering of crude oil as well, as demand remained in China – the largest importer – is weak with government pressure to continue implementing the “zero Covid” policy.
The report quoted international analysts, that the main indicators of demand for crude oil are turning into a significant decline, explaining that the earnings season and inflation expectations so far support the idea that the Federal Reserve will continue to tighten until it sends the economy into a recession.
The report pointed to data released by VitaFi, indicating that recession fears and the impact of weak demand associated with them remain in focus, now that there is more clarity about supply after the “OPEC +” meeting.
The report highlighted the US Energy Information Administration’s reduction of its forecast for the average spot price of Brent crude for 2022 and 2023, as the EIA expects that the average spot price of Brent crude will be $102.09 per barrel this year and $94.58 per barrel in 2023.
The report pointed out that before the “OPEC +” announcement and speculation of cuts in the days immediately preceding the announcement, crude oil prices were generally declining due to growing concerns about weak global economic conditions.
The report promised that the issuance of the strategic petroleum reserve of 180 million barrels, which was made in recent months, may also alleviate supply concerns – according to estimates by the US Energy Information Administration – noting that the peak of Brent crude prices was seen in 2022 – so far – on last March 8 at when 127.98 per barrel, and its lowest levels in 2022 – so far – were seen on January 3, at $78.98 per barrel.
For its part, the international oil “Oil Price” report stated that the past week witnessed the recording of many conflicting signals for the oil markets, as the huge crude oil stocks were partially compensated by the withdrawal of diesel, while the tight supply continues that combats the worrying inflation data and expectations of deteriorating demand.
The report stated that the market is suffering from bearish news represented by an increase in crude oil inventories by nearly ten million barrels, which is a huge change on a weekly basis, while US inflation data was also worrying for oil, as the core consumer price index reached its highest level in 40 years last September.
The report indicated that diesel stocks in the United States decreased by 4.9 million barrels, which indicates a worrying shortage before the next winter, explaining that in Europe, labor strikes in refineries in France add to fuel supply concerns, while the “OPEC +” production cut and the crude price ceiling Russia has two other bullish factors looming on the oil markets.
The report noted that “OPEC” reduced its monthly demand growth forecast in 2022-2023 to 2.64 and 2.34 million barrels per day, respectively, after pledging to cut production by two million barrels per day, citing slowing economic growth, monetary tightening and ongoing supply issues.
The report highlighted the US Energy Information Administration’s lowering of its forecast for US crude oil production for 2023 to 12.4 million barrels per day, up from 11.7 million barrels per day this year, as capital discipline and expectations of lower global demand affect production.
The report pointed to a peak in oil merger and acquisition activity in the United States, as mergers and acquisitions in the American oil sector rose to 16 billion in the third quarter, the highest quarterly level this year, despite the short-term expectations of mergers and acquisitions. Relatively weak, as oil companies prefer to pay off debt and buy back shares rather than invest.
The report warned that the looming recession threatens to restrict demand for crude oil, which will have a significant impact on prices, noting that if a ceiling is set for Russian oil prices, a large amount of oil supplies will be withdrawn from the market, and Russia is likely to succeed in Finding alternative markets for its crude oil, noting that Russia produces 9.9 million barrels per day.
The report added that if Russia actually refuses to ship its crude oil to any country that participates in setting a price cap, production will be significantly reduced, as it is estimated that another million barrels could be withdrawn from the market if Russia implements its decision.
The report noted the inability of the United States to increase domestic production, as the Group of Seven failed to make significant progress in setting a ceiling for crude oil prices in Russia.
On the other hand, with regard to prices at the end of last week, oil prices fell upon settlement of Friday’s transactions, as US crude recorded weekly losses of about 7.6 percent.
Upon settlement, Brent crude futures fell by 3.1 percent to $91.63 a barrel, recording a weekly loss of 6.4 percent.
US crude also fell by 3.9 percent at $85.61 a barrel.
Oil prices gave up half of the gains recorded this month this week, due to the expectations of “OPEC” on demand.
The International Energy Agency lowered its forecast for oil demand for the current and next years, warning of a possible global economic recession.
And coinciding with the decline in prices, the rise of the dollar, as the strength of the US currency reduces the demand for oil by making the fuel more expensive for buyers who use other currencies.
For its part, the American “Baker Hughes” report stated that the total number of active drilling rigs in the United States increased by seven last week, and the total number of rigs rose to 769 this week – 226 rigs higher than the number of rigs this time in 2021.
The report pointed out that oil rigs in the United States rose by eight this week, to 610, and gas rigs decreased by 1, to 157. The various rigs remained unchanged at 2.
The report indicated that the number of rigs in the Permian Basin rose from 1 to 346 this week.
Eagle Ford rigs are down 1 to 71, and oil and gas rigs in the Permian are up 79, this time it was last year.
The report noted that crude oil production in the United States witnessed a disappointing week, as American crude production fell to 11.9 million barrels per day for the week ending October 7, according to the latest weekly Energy Information Administration estimates, and production levels in the United States rose only 200 thousand barrels per day. So far this year, it has increased by 600,000 barrels per day compared to last year.