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Futures Movers: Oil prices log a weekly loss of more than 4% as investors ride supply-and-demand seesaw

Oil prices settled lower Friday, contributing to a more than 4% loss for the week, with China’s COVID outbreak and expectations for aggressive interest-rate increases by the Federal Reserve dulling prospects for energy demand.

Price action

West Texas Intermediate crude for June delivery 
CL.1,
-1.85%

 
CL00,
-1.85%

CLM22,
-1.85%

fell $1.72, or 1.7%, to settle at $102.07 a barrel on the New York Mercantile Exchange. Prices for the contract were down about 4.1% for the week, FactSet data show.

June Brent crude
BRN00,
-0.30%

BRNM22,
-0.32%

fell $1.68, or nearly 1.6%, to $106.65 a barrel on ICE Futures Europe, with prices down 4.5% for the week.

May gasoline
RBK22,
-1.36%

 fell 1% to $3.305 a gallon, for a weekly loss of 2.3%, while May heating oil 
HOK22,
+1.24%

 added 1% to $3.939 a gallon, ending 2.2% higher for the week.

May natural gas 
NGK22,
-6.63%

declined by 6.1% to $6.534 per million British thermal units, with prices down 10.5% for the week.

Market drivers

U.S. and and global crude benchmark prices ended lower after a a choppy week of trading.

“One part of this has been played by concerns about demand in connection with the rigid COVID policy in China, which threatens to paralyze the key business hub of Shanghai for a period of several weeks. Sharply rising bond yields, a firm U.S. dollar and falling stock markets are likewise generating headwinds,” said Commerzbank analyst Carsten Fritsch, in a note to clients.

Oil prices fell Friday in step with the U.S. stock market, as investors continued to absorb hawkish comments from Federal Reserve Chairman Jerome Powell on Thursday.

The Fed is expected to “aggressively raise interest rates in the months ahead to combat inflation levels that have touched multi-decade highs in many cases,” said Robbie Fraser, global research & analytics manager at Schneider Electric, in a daily note. “All else equal, higher rates are traditionally bearish for dollar-denominated commodities like crude.” 

Markets are unsure whether the Fed will get the balance right — raising interest rates to battle inflation but without triggering a recession.

The outlook for oil demand is uncertain given that on the one hand, there’s a potential GDP slowdown due to rising interest rates and on the other hand, there’s potential demand destruction due to high energy prices, Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

Meanwhile, talk of a potential European Union ban on Russian oil has failed to support oil prices “because nobody believes it,” he said. The EU has been talking about a potential ban, while Russia has been “planning alternative routes to send more oil to Asia.”

Production outages in Libya had provided some support for prices this week, analysts noted.

See: Libya oil production outage a ‘convenient coincidence’ that helps Russia: analyst

On Thursday, analysts at Morgan Stanley raised their third-quarter price forecast for Brent to $130 a barrel from $120 on expectations for a greater deficit ahead.

“Oil demand is likely to recover more slowly than we previously expected, but this is more than offset by a weaker supply outlook, driven by Russia and Iran,” they said in a note.

Also see: Loss of fertilizer supplies from Russia feeds food inflation, benefits other producers

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