Oil Heads For Second Week of Losses as Demand Concerns Weigh

© Reuters.

By Ambar Warrick

AiVIF.com-- Oil prices were mixed on Friday as investors digested an unexpected build in U.S. crude inventories, but were set for steep weekly losses on concerns that slowing global economic growth will weigh on demand.

London-traded Brent oil futures rose 0.4% to $88.88 a barrel, while U.S. West Texas Intermediate futures fell 0.4% to $83.20 a barrel by 20:30 ET (00:30 GMT). Both contracts were set to lose over 4% for the week, their second straight week of losses. 

Oil prices hit over seven-month lows earlier this week after weakening imports by China raised concerns over slowing demand in the world’s largest oil importer. Economic growth in the country has slowed sharply this year after a series of COVID-19 lockdowns. 

Interest rate hikes in Canada and Europe, coupled with hawkish statements from the U.S. Federal Reserve, also weighed on sentiment towards crude, as did the dollar hitting an over 20-year high. 

A production cut by the Organization of Petroleum Exporting Countries and its allies was broadly seen as nominal and did little to support prices.

But oil prices recovered slightly on Thursday as some traders bought the dip. The U.S. Energy Information Administration also forecast slightly higher demand, and tighter supply going into 2023.

Russia threatened to cut crude supply to some importers, a move that could result in a supply crunch. A brewing energy crisis in Europe is also expected to push up crude demand in the winter months.

U.S. crude oil inventories unexpectedly grew over the past week, data showed on Thursday. But traders attributed the build to the government releasing crude stockpiles from the country’s Strategic Petroleum Reserve.

Underlying oil demand in the United States appears to be strong, as shown by a steady draw on U.S. gasoline inventories over the past month. A drop in gasoline prices, from record highs, has also benefited demand. 

But while U.S. oil demand appears to be resilient, oil prices have largely tumbled on concerns over broader demand. Strength in the dollar has made buying crude expensive for major Asian importers such as India and Indonesia.

Oil prices have plummeted from 2022 highs as rising inflation and interest rates across the globe raised concerns over a potential recession, which could severely depress economic activity.