Oil Prices Down on Demand Outlook Concerns
Oil settled at the lowest price in nearly three weeks as a dollar rally and waning optimism over demand wiped out last week’s gains stemming from China’s less restrictive approach to Covid-19.
West Texas Intermediate futures settled below $86 a barrel, dropping 3.5%. Broader markets fluctuated as traders tried to divine what path the Federal Reserve would follow on subsequent rate hikes. Meanwhile, US oil and gas companies fracked fewer wells than they drilled for the first time in two years, suggesting pessimism about the demand outlook going forward.
Over the weekend, Fed Governor Christopher Waller said there was still some ways to go on hikes. Monday afternoon Vice Chair Lael Brainard said it would be appropriate for the central bank to soon slow its pace. Oil ignored the subsequent rally in equity markets as optimism fizzled over China’s recovery from lockdowns.
“Crude prices were dragged down as the short-term demand outlook looks like it is heading much lower,” said Ed Moya, senior market analyst at Oanda. “China’s COVID situation is not improving and the US economy appears to be quickly weakening.”
Traders balanced broader market fears with ongoing risks to supply, which have kept futures locked in a tight range over the past month. An increase in Chinese crude consumption could lead to further tightening of the market, which is facing European Union sanctions on Russian oil flows next month. OPEC cut its forecasts for global oil demand on Monday, which some analysts said could signal further production cuts ahead.
“The Covid-19 situation in China is cutting both ways in that right now obviously there’s a big increase in cases weighing things down but it looks like they are finally preparing to pivot,” said John Kilduff, founding partner at Again Capital. “The oil market’s been highly reactive to any hope or optimism about the reopening.”
US Treasury Secretary Janet Yellen said Russia will likely have to shut in some of its oil production if it doesn’t abide by a price cap. The European Union is “ready to go” with an effort to impose a price cap on Russian oil, according to the president of the group’s executive arm, Ursula von der Leyen, though a price level has not yet been decided.
- WTI for December delivery fell $3.09 to settle at $85.87 a barrel.
- Brent for January settlement dropped $2.85 to $93.14 a barrel.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Germany Wants to Take Action to Curb Russian LNG Imports
- Exxon Beats Estimates, Posts Record $56B 2022 Profit
- Total CEO Sees Tight Gas Market, Pricey Diesel in Europe in 2023
- Ecopetrol Bonds Slump as CEO Exits Amid Petro's Exploration Halt
- New York Gasoline Shortage Brews on Fallout From EU Russia Ban