The price of crude oil skyrocketed on Friday as the market generally ignored the crude oil demand implications from worries about the technical recession.
At 11:40 p.m., ET, WTI crude was trading near $100 at $99.94 per barrel, an increase of $3.52 (+3.65%) on the day. Brent crude was trading above $110 per barrel at $110.20, up $3.06 (+2.86%) on the day.
The market cannot seem to brush off the tight supply situation that currently exists. Another bullish factor for crude oil on Friday was the Energy Information Administration's publication of its numbers for U.S. crude oil production for May, which showed that U.S. crude oil production actually fell in May instead of rose, contrary to the EIA's latest estimates from its Short Term Energy Outlook.
The news that OPEC+'s meeting next week would likely end with no significant production target increase also bolstered prices to a significant degree. On Thursday, five OPEC+ sources suggested that OPEC+ was likely to keep its production targets for September steady with August levels. Two OPEC+ sources said that the group could discuss a small output hike. The market is aware, however, that even a hike in production targets is unlikely to result in an actual OPEC+ production boost due to chronic underproduction compared to the group's current targets.
WTI prices are not only up on the day but also up on the week. Prices have come down over the past month, however. WTI traded at nearly $110 per barrel this time last month. Prices are up more than $20 per barrel so far this year.
Despite the high price of crude oil and the recession, global oil demand doesn't seem to be declining, Amrita Sen, director of research at Energy Aspects, told Bloomberg on Friday.
With indications that crude demand hasn't yet fully recovered from its Covid days, inventories are tight, even with millions of barrels of crude oil leaving Strategic Petroleum Reserves around the globe. When this flow of crude stops flowing from the SPR in October, the market could get even tighter.
By Julianne Geiger for Oilprice.com
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Comments
If the global oil market is shrugging off concerns about recession and demand destruction, it is because it is in a most bullish and tightest state with robust global oil demand and an ever-shrinking global spare oil production capacity including OPEC+’s.
Against this background, not even the threat of harsh recession and rampant inflation could arrest the surge of both oil demand and prices.
In normal circumstances, a recession leads to a shrinking global economy and demand destruction. But we are in unusual circumstances. With a tightening market and shortages in the market, there isn’t much for demand destruction to destroy. So we end up with a unique type of recession with rising oil demand, a shrinking production capacity and a contracting global economy.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert