Oil prices down 1.5% for the week on recession jitters

OIL prices steadied on Friday (Aug 19), but fell for the week on a stronger US dollar and fears that an economic slowdown would weaken crude demand.

Brent crude futures settled at US$96.72 a barrel, gaining 13 cents. US West Texas Intermediate (WTI) crude ended 27 cents higher at US$90.77. Both benchmarks fell about 1.5 per cent on the week.

Oil briefly jumped in volatile trade on comments made by Richmond Federal Reserve president Thomas Barkin that the Fed would balance its rate hike path with uncertainty over any impact on the economy. But crude pared its gains as investor concerns about upcoming rate hikes settled back in.

Strength in the US dollar hit a five-week high, which also capped crude’s gains as it make oil more expensive for buyers in other currencies.

“Although the oil complex has been able to shrug off a strong dollar on any given session, extended strong dollar trends will pose a major headwind against sustainable oil price gains,” Jim Ritterbusch, of oil trading advisory firm Ritterbusch and Associates, said in a note.

In a sign of easing oil supply tightness, the price gap between prompt and second-month Brent futures has narrowed by about US$5 a barrel since the end of July to under US$1. The spread for WTI has shrunk to a 39-cent premium from a nearly US$2 premium in late July.

Haitham Al Ghais, the new secretary general of the Organization of the Petroleum Exporting Countries, told Reuters he was optimistic about oil demand into 2023.

Opec is keen to ensure Russia remains part of the Opec+ group, Al Ghais said ahead of a Sept 5 meeting.

Supplies could tighten again when European buyers start seeking alternative supplies to replace Russian oil ahead of European Union sanctions that take effect from Dec 5.

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“We calculate the EU will need to replace 1.2 million barrels per day of seaborne Russian crude imports with crude from other regions,” consultancy FGE said in a note.

Data earlier this week showed US crude inventories fell sharply as world’s top producer exported a record 5 million barrels of oil per day last week, with oil companies finding demand from European nations looking to replace Russian crude.

However, the number of US oil rigs, an early indicator of future supply, was unchanged at 601 this week, according to Baker Hughes Co, as energy companies slowly increase production to pre-pandemic levels with shale oil output in September expected to hit its highest since March 2020. REUTERS