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Post: Futures Movers: Oil on track for weekly fall amid recession fears

Oil prices declined on Friday, contributing to a loss for the week, as worries over a global economic downturn continued to plague the demand outlook.

Price action
  • West Texas Intermediate crude for November delivery
    CL.1,
    -3.37%

    CL00,
    -3.37%

    CLX22,
    -3.37%

    fell $2.71, or 3%, to $86.40 a barrel on the New York Mercantile Exchange, putting the U.S. benchmark on track for a 6.8% weekly fall, its first in three weeks.

  • December Brent crude
    BRN00,
    -2.68%

    BRNZ22,
    -2.68%
    ,
    the global benchmark, was down $2.50, or 2.6%, at $92.07 a barrel on ICE Futures Europe. It was off 6% for the week.

  • November gasoline
    RBX22,
    -2.88%

    declined 3.2% to $2.6177 a gallon, set for a more than 4% weekly pullback; November heating oil
    HOX22,
    -2.26%

    was down 2.8% at $3.9805 a gallon, leaving it down 0.9% for the week.

  • November natural gas
    NGX22,
    -3.71%

    fell 3.7% to $6.489 per million British thermal units, off 3.8% for the week.

Market drivers

Crude prices bounced on Thursday as markets whipsawed in the wake of a U.S. September consumer-price index reading that showed year-over-year core inflation, which strips out food and energy costs, accelerated to a 40-year high. The move cemented expectations for a supersize 75 basis point interest rate increase by the Federal Reserve early next month.

But U.S. stocks bounced back ferociously after tanking in the wake of the data, ending sharply higher. Crude and other assets perceived as risky were also lifted, while the dollar pulled back. Concerns remain, however, that aggressive rate increases by the Fed and other major central banks could spark a sharp global economic downturn.

“Cross-asset correlations are so tight it seems like broader risk sentiment very much influences interday oil sentiment,” Stephen Innes, managing partner at SPI Asset Management, told MarketWatch.

Oil was set to give back a portion of last week’s rally that was attributed in large part to the decision by the Organization of the Petroleum Exporting Countries and its allies — a group known as OPEC+ — to cut production by 2 million barrels a day beginning in November. The actual reduction is expected to be around half that size since several producers were already pumping below their individual targets.

Downbeat assessments for demand growth by OPEC and the International Energy Agency in their monthly reports this week were contributing to the weaker tone, wrote analysts at Commerzbank, though they argued that downside for crude was likely to remain limited due to tight global supplies and OPEC+’s resolve to take action if necessary to put a floor under prices.

“The market is set to be just about balanced despite weaker demand in the first half of the year due to the OPEC+ production cuts that will come into effect from November,” the analysts wrote.

That’s due to be followed by a “pronounced undersupply” in the second half of the year,” they said.

“In our opinion, however, the most important argument in favor of high prices is the fact that OPEC+ has clearly signaled that it will do everything in its power to preclude any marked price fall: heavyweight Saudi Arabia appears to view its alliance with Russia as more important in this context than the goodwill of the U.S.,” the analysts wrote.

See: Saudi Arabia defends OPEC+ production cut, suggests White House wanted delay until after midterms

Meanwhile, oil traders are looking to the 20th National Congress of the Chinese Communist Party on Oct. 16, said SPI Asset Management’s Innes.

The outcome of that “matters for the political and economic outlook of the country.,” he said, adding that the People’s Bank of China “could cut rates given the low inflation, but fiscal is the key.”:

“Beijing should provide more stimulus for the economy, focusing on supporting consumption rather than investing. Oil should run with that,” said Innes. But any change in COVID-19 policy is unlikely, “as it seems they will not soften on that until early 2023, but many odd things are happening these days. That is a huge wild card, but I don’t think it comes into play for prompt oil until later in the year.” 

Also see: Here’s how much more U.S. households will pay to heat their homes this winter

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