Oil declined at the start of the week as concerns about an economic slowdown overshadowed signs of a tight physical crude market.
West Texas Intermediate fell below $94 a barrel after capping a third weekly decline on Friday, the longest streak of losses this year. The Federal Reserve is expected to approve another big interest-rate hike this week as the central bank combats surging inflation, piling pressure on demand.
“While prices have been volatile, I expect renewed downward pressure on crude,” said Vandana Hari, founder of Vanda Insights. The Fed meeting “will likely serve as a fresh reminder of the economic headwinds.”
The oil market has seen bouts of volatility recently, characterised by sharp swings and low liquidity, as investors juggle competing supply and demand outlooks. Crude is up around 25% for the year, although futures have given up most of the gains seen after Russia’s invasion of Ukraine in late February.
Russia’s invasion has prompted a pivot away from the OPEC+ producer by many consumers, and that’s led to Saudi Arabia and Iraq diverting more oil toward Europe. The US is championing a price cap on Russian crude to limit revenues flowing to the Kremlin to fund its war, and the Treasury Department’s No. 2 official will be in Europe this week to rally support for the measure.
WTI for September delivery fell 0.9% to $93.82 a barrel on the New York Mercantile Exchange at 10:36 a.m. in Singapore.
Futures dropped 3% last week.
Brent for September settlement lost 0.8% to $102.28 a barrel on the ICE Futures Europe exchange.
While oil has been whipsawed by escalating fears that the US is heading for a recession, veteran commodities trader Pierre Andurand says oil demand may exceed expectations even if the global economy falters. Consumption growth has lagged behind its four-decade trend over the past few years because of virus lockdowns, and should revert back to normal levels, he said on Twitter.
The oil market is steeply backwardated, a bullish pattern market by near-term prices commanding a premium to later-dates ones. Brent’s prompt spread was $4.93 a barrel in backwardation, over $1 higher than the start of the month.
A segment of the massive Keystone pipeline that delivers Canadian crude to the key US storage hub at Cushing restored normal operations late Friday following a power disruption. Service was still subject to mid-month capacity reductions, according to a bulletin obtained by Bloomberg.