Oil prices slid by 3% early on Friday, erasing the gains from earlier this week, as the contracts are set for rollover and central banks say much needs to be done to curb inflation despite the less aggressive hike rates this week.
As of 9:37 a.m. ET on Friday, the front-month U.S. benchmark contract WTI Crude was trading down 3.35% at $73.45. The international benchmark, Brent Crude, was down 3.42% on the day to $78.42, slipping below $80 per barrel again after having reached $82 per barrel earlier this week.
Brent at $78 per barrel is the lowest level in a year, lower than before the Russian invasion of Ukraine.
Inventory builds across the board in the United States also weighed on oil prices this week, as well as the policy statements from the Fed and other major central banks such as the European Central Bank (EBC) and the Bank of England, which said the taming of the inflation – which may have already peaked – needs continued monetary policy tightening and the rates at the end of the tightening cycle could end up higher than initially estimated.
The Fed raised by half a percentage point the federal funds rate on Thursday, ending the several consecutive 0.75 percentage point increases, for now. The Bank of England and the ECB also raised rates by 0.50 percentage points, with the UK rate hike being the ninth consecutive increase since December 2021.
The ECB said on Thursday that “interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.”
Oil reversed some of the strong gains seen earlier in the week, “after the Fed’s hawkish tilt was followed by a slew of other G10 central banks, especially the ECB which highlighted the struggle to get inflation under control,” Saxo Bank said on Friday.
“Given the current focus on recession potentially hurting demand, a supply side struggle may not positively impact prices until the second quarter, and with that in mind, the price of Brent may settle into a range below $90 until then,” the bank’s strategy team added.
By Tsvetana Paraskova for Oilprice.com
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Whatever the ahem *"price"* ahem make no mistake inventories are going to continue to build going into and then beyond year end 2022 for more than just energy product i think needs noting but for food product as well indeed much if not all retail now and going forward. This includes big ticket items to include Das Auto...even aircraft up to the size of a Bombardier A220 or Embraer E2 series. How well the Chinese C919 enters into this market which in theory now includes near all Boeing 737 suddenly should be quite the sight to behold for 2023.
Long $hmc Honda Motor Corporation
Strong buy
But these changes tend to be short-lived for the simple reason that fundamental of the global oil market are strong. This is confirmed by the projections by both OPEC+ and the IEA that global oil demand will rise in 2022 by 2.5 million barrels a day (mbd) and 2.3 mbd respectively. This brings global oil demand in 2022 to 101.5 mbd according to OPEC+ and 101.3 mbd according to the IEA, a demand growth of 2.3%-2.5%.
Such rise in demand is very traditionally matched by a rise in oil prices. Therefore, oil prices are projected to reverse course and resume its rise with Brent crude touching $90 before the end of the year or first quarter of 2023. Prices are being underpinned by robust global oil demand, a tight market and a shrinking global spare production capacity including OPEC+’s.
And while inflation and recession are causing Western economies to shrink fast, the same can’t be said of Asia-Pacific countries whose economies are far less affected by inflation and recession than their Western countries. One major reason is that they are receiving cheaper oil, gas and coal supplies from Russia.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert