Oil Prices Rise Amidst Concerns of Global Economic Slowdown
Oil prices experienced a slight increase on Friday, providing some relief after a week of significant losses. Brent futures rose by 36 cents to reach $84.43 per barrel, while West Texas Intermediate crude futures increased by 29 cents to $82.60. However, both benchmarks were still on track to record their most substantial weekly declines since March. Concerns over a potential global economic slowdown, coupled with Russia partially lifting its fuel export ban, have contributed to these losses.
The persistently high interest rates and fears of slowing global growth have dampened fuel demand, despite supply cuts by Saudi Arabia and Russia, who have agreed to continue reducing output until the end of the year. The recent release of U.S. job growth statistics, which exceeded economists’ forecasts with a rise of 336,000 in September, has created mixed sentiments regarding oil prices. While a robust U.S. economy could boost near-term oil demand, the statistics also resulted in a stronger U.S. dollar and increased expectations of another interest rate hike in 2023. A stronger U.S. dollar typically negatively impacts oil demand, as it makes the commodity relatively more expensive for holders of other currencies.
Russia’s decision to lift its ban on diesel exports for supplies delivered to ports by pipeline has further influenced the market. However, companies are still required to sell at least 50% of their diesel production domestically. This announcement initially caused the price spread between gasoil and Brent futures to drop to its lowest level since July at $23.59 per barrel, but it has since rebounded to $25.84.
The sell-off in oil prices is primarily driven by concerns about the global economy and future oil demand. However, reports of increased travel activity in China during the mid-autumn and National Day holidays have provided some support to prices. According to Xinhua news agency, travel during these holidays rose by 71.3% compared to the previous year and 4.1% compared to 2019.
In terms of future U.S. supply, the number of oil rigs fell by five to 497 this week, the lowest level since February 2022, according to energy services firm Baker Hughes. This decline indicates a potential impact on future oil production in the United States.
While oil prices have faced significant challenges this week, the market remains dynamic and influenced by various factors. Traders and analysts will continue to monitor global economic indicators and geopolitical developments to assess the future direction of oil prices.