By Adedapo Adesanya
Oil grades grew on Friday, with the Brent expanding by 51 cents to settle at $91.35 per barrel and the US West Texas Intermediate increasing by 1 cent to $85.11 per barrel as a spill at Iraq’s Basra terminal appeared likely to constrain crude supply.
However, the commodity remained down on a week-on-week basis on fears that hefty interest rate increases will curb global economic growth and demand for fuel.
Friday’s gain came as an oil spill forced a shutdown of all crude oil exports from Iraq’s Basra Port, which will likely create supply constraints in one of the world’s largest oil exporting countries.
With four tanker berths, the Basra oil terminal can process 3.3 million barrels of crude oil per day, although the country had plans to raise this capacity to 3.45 million barrels per day in Q2 2022. However, the expansion has not been completed on time due to delays in pumping station upgrades.
Although exports from Basra would remain shut in until repair work can be completed, it is unclear whether the oil spill or the repair work needed is related to the expansion project.
The port shutdown comes ill-timed for the oil markets, which remain tight. The largest purchasers of Iraq’s crude oil are China, India, South Korea, the United States, and Italy.
However, investors are bracing for a large increase in US interest rates, which could lead to a recession and reduce fuel demand. The Federal Reserve is widely expected to raise its benchmark overnight interest rate by 75 basis points at a September 20-21 policy meeting.
The market also was rattled by the International Energy Agency’s outlook for almost zero growth in oil demand in the fourth quarter owing to a weaker demand outlook in China.
Also, both the International Monetary Fund (IMF) and World Bank warned that the global economy could tip into recession next year. This spells bad news for the demand side of the oil markets.
On the supply side, the market has found some support on dwindling expectations of a return of Iranian crude as Western officials play down prospects of reviving a nuclear deal.
Oil prices could also be supported in the fourth quarter if members of the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ cut production, which will be discussed at the group’s October meeting.
Modupe Gbadeyanka