Oil Prices Rise, but Post Biggest Weekly Decline Since March
By Stephanie Kelly
Oil prices experienced an increase on Friday, although they still recorded their largest weekly losses since March. This decline was due to a partial lifting of Russia’s fuel export ban, which compounded concerns over demand amid macroeconomic headwinds.
On Friday, futures settled up 51 cents at $84.58 per barrel, while U.S. West Texas Intermediate crude futures settled up 48 cents at $82.79.
For the week, Brent saw a decline of approximately 11%, while WTI recorded a drop of over 8%. These losses were driven by worries that persistently high interest rates would slow global growth and significantly impact fuel demand. Despite supply cuts from Saudi Arabia and Russia, who announced their intention to continue reducing supply until the end of the year, these concerns remained.
In September, U.S. job growth increased by 336,000, surpassing economists’ forecasts of a 170,000 rise. While this positive economic indicator could boost sentiment for near-term oil demand, it also resulted in a stronger U.S. dollar and increased speculation of another interest rate hike in 2023.
A strong U.S. dollar typically has a negative impact on oil demand, as it makes the commodity relatively more expensive for holders of other currencies. ING analysts noted, “Today’s (jobs) number keeps alive the prospect of another rate hike and certainly backs the Federal Reserve’s argument on the need for interest rates to stay higher for longer.”
Russia recently announced the lifting of its ban on diesel exports for supplies delivered to ports by pipeline, with the condition that companies must still sell at least 50% of their diesel production to the domestic market. This decision caused the price spread between gasoil and Brent futures to initially fall to its lowest level since July at $23.59 per barrel, but it has since rebounded to $25.84.
“Fear for the health of the global economy and thus oil demand going forward is at the heart of the sell-off,” said SEB analyst Bjarne Schieldrop.
However, reports of increased Chinese travel activity have provided some support to oil prices. During the mid-autumn and National Day holiday, travel in China rose by 71.3% compared to the previous year and 4.1% compared to 2019, reaching a total of 826 million trips.
In terms of future U.S. supply, U.S. oil rigs fell to their lowest number since February 2022, with a decrease of five rigs to a total of 497, according to energy services firm Baker Hughes.
According to the U.S. Commodity Futures Trading Commission (CFTC), money managers reduced their net long futures and options positions by 5,877 contracts to 279,759 in the week leading up to October 3.
