Worsening Global Economy Shakes Up Oil Prices

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“Punishing”: that’s one adjective pundits used to describe oil’s performance this week, as the commodity headed for a sizable weekly loss of 10 percent amid increased evidence that a worsening global economy is causing demand destruction, says an article published in Ship & Bunker.

Key Commodities Closings

For the day, two key commodities settled slightly higher: Brent closed 0.85 percent higher at $94.92 per barrel, while West Texas Intermediate settled 0.53 percent higher at $89.01 per barrel.

A Fear Of Recession

Recession worries reached a fever pitch when the Bank of England raised interest rates by the most since 1995 and warned of a drawn-out downturn after; this caused Tina Teng, analyst at CMC Markets, to remark that “If commodities are not pricing in an imminent economic recession, they might be preparing for a ‘stagflation’ era when the unemployment rate starts picking up and inflation stays high.”

A Very Tight Market

Craig Erlam, senior market analyst at Oanda, added, “Clearly, everyone is taking the threat of recession far more seriously as we’re still seeing a very tight market and producers with no capacity to change that.”

Ongoing Irony 

The ongoing irony, of course, is that the global supply market remains tighter than ever and is expected to intensify even further towards the end of the year when on December 5 the European Union sanctions banning seaborne imports of Russia crude and oil products are set to take effect.

Two Parallel Worlds

Indeed, other news on Friday gives the impression that the oil market now exists in two parallel worlds: one that is influenced by demand concerns, and the other in which a tight market is sparking vigorous competition.

Keen Competition In Asia

The latter was evident when Bloomberg on Friday noted that Saudi Arabia’s decision earlier in the week to price some of its oil at lower-than-expected levels “is setting the stage for keen competition in Asia among producers vying to supply the region.”

Sweet Crude

The news agency went on to point out that Asian refiners “have started to snap up light-sweet crude from the U.S. for November delivery; the WTI Midland grade was shown at a premium of around $8 a barrel over benchmark Dubai prices to North Asian buyers this week….down from $15 to $16 a month ago.”

Energy Prices To Stay High

Meanwhile, as it became evident that oil was heading towards another substantial weekly loss on Friday, Bill Smead, chief investment officer at Smead Capital Management, insisted that oil stocks are still a great buy, because energy prices are likely to stay high or even increase further.

Curing The Inflation

He said, “You have this huge move, you go from $20 a barrel to $120 and then you pull back — and now people are going, ‘Oh yeah, that’s all over, that’s going to cure the inflation right there.'”

Boosting Prices Again

However, he added that the U.S. will have to replace 180 million barrels of strategic reserves that were recently drawn down, plus China’s economy will likely come roaring back after its Covid inspired lockdowns are lifted in presumably the near future – both of which will presumably boost prices yet again.

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Source: Ship & Bunker

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