Oil prices post first weekly loss since March on recession fears and slowing demand

Petrol stocks unexpectedly rose by 1.3 million barrels to 223.5 million barrels last week, according to the US Energy Information Administration

Shipping containers and storage tanks at a Los Angeles refinery. Oil prices eased for a third day in a row on Friday. Reuters

Oil prices ended up at the close of trading on Friday but still posted their first weekly loss since last month, dragged down by fears of a recession in the US and concerns about global demand for crude.

Brent, the benchmark for two thirds of the world’s oil, settled 0.69 per cent higher at $81.66 a barrel. West Texas Intermediate (WTI), the gauge that tracks US crude, added 0.65 per cent to close at $77.87 a barrel.

Compared to last Friday, however, Brent and WTI were down about 5.5 per cent and 5.6 per cent, respectively. The benchmarks had posted gains of 1.4 per cent and 2.24 per cent, respectively, at the close of trading last week.

“Oil is getting crushed as Wall Street starts to get a steady stream of disappointing outlooks and on concerns that sentiment with China’s households and business might not be as robust as some are thinking,” said Edward Moya, a senior market analyst at Oanda.

“[The] downside for oil prices should be limited to the gap made from the Opec+ production cut announcement earlier this month. Despite the short-term risks for crude prices, oil should still find a home north of the $80 a barrel level.”

Oil has given up most of the gains made after the Opec+ 23-member alliance of producers announced it would make voluntary crude output cuts of 1.16 million barrels per day from May until the end of this year as a precautionary measure aimed at supporting the stability of the oil market.

Russia also said the 500,000 bpd cut initially planned for March to June would continue until the end of the year.

The latest move takes the output cut to more than 1.66 million bpd by the end of this year, in addition to the two million bpd production cut that began at the end of last year.

Earlier this month, the International Monetary Fund said the global economy faces a “rocky” recovery as geopolitics, monetary tightening and inflation continue to weigh on growth.

This prompted it lower its global economic growth estimate for 2023 by 0.1 percentage points to 2.8 per cent, from what it previously projected in January, with the estimate below the 3.4 per cent expansion recorded in 2022 and the historical growth average of 3.8 per cent over the 2000-2019 period.

A rise in US stocks dragged prices down this week. Petrol inventories unexpectedly increased last week by 1.3 million barrels to 223.5 million barrels, the US Energy Information Administration said in its report on Wednesday.

Despite the decline in oil prices, some analysts believe demand will rebound.

Last week, the International Energy Agency raised its 2023 global oil demand estimates.

The agency projected a two million bpd rise to a record 101.9 million bpd this year as China, the world's biggest crude importer, reopens its economy after about three years of adhering to a strict zero-Covid policy.

MUFG Bank, Japan's largest lender, expects the oil market to return to sustained deficits from June, given the accelerated growth in emerging markets, with demand primarily coming from China and India, and driven by Russia's oil decoupling and lethargic US supply.

“These forces, together with severe Opec+ cuts, in tandem with tight micro fundamentals — thin spare production capacity and acutely low inventories amid a dearth of structural underinvestment — are set to drive oil prices constructively higher, with Brent hitting well north of $90 a barrel by the summer,” said Ehsan Khoman, head of emerging markets research for Europe, the Middle East and Africa at MUFG Bank.

Meanwhile, the US job market is cooling but not at the desired pace required to reduce inflation down to the Federal Reserve's 2 per cent target.

This means the US central bank could continue to raise interest rates when it meets on May 2 and May 3.

Inflation in the US has come down from its 40-year high last year of 9.1 per cent, with the February reading at 5 per cent.

The US could begin to refill its Strategic Petroleum Reserve in the third quarter of this year if the price is right, Amos Hochstein, the country's special presidential co-ordinator for global infrastructure and energy security, said at the Bloomberg New Economy Gateway Europe event in Dublin.

“We sold the oil at well above $90 a barrel on average. If we can buy back at $70 a barrel, that is both prudent, good management of the SPR itself and a good deal for the American people financially,” Bloomberg quoted him as saying.