Oil Drops on Continued Weak Demand, Interest Rate Hike Outlook

By Adedapo Adesanya

Oil dropped on Friday due to further concerns about weakened demand in China and further increases in interest rates in the United States.

Yesterday, the price of Brent crude went down by $2.16 or 2.4 per cent to $87.62 a barrel, as the price of the US West Texas Intermediate (WTI) crude depreciated by $1.56 or 1.9 per cent to $80.08 a barrel.

Business Post reports that on a week-on-week basis, both benchmarks posted losses, with Brent down about 9 per cent and WTI roughly lower by 10 per cent.

Prices were already trading lower as supply disruption worries eased while rising numbers of COVID-19 cases in China added to anxieties over demand in the world’s largest crude importer.

China, which is looking to slow crude imports, has seen a rise in COVID-19 cases, with the country’s refiners reportedly asking Saudi Arabia to cut already nominated December volumes, simultaneously cutting back on other buying, too.

The world’s largest oil importer is battling coronavirus outbreaks in numerous major cities, including Chongqing and the capital, Beijing, while it takes steps to try to ease the burden of its strict zero-COVID policy, which has caused severe economic damage and widespread frustration nearly three years into the pandemic.

Guangzhou, a manufacturing hub home to 19 million people, is currently battling China’s largest latest outbreak, with new daily infections of COVID-19 rising to 8,761 and raising concerns that it is reaching a scale matching Shanghai’s outbreak earlier this year.

A stronger US Dollar, which makes oil more expensive to non-American buyers, also pushed down crude prices.

As the European Union’s ban on Russian crude looms on December 5, the prospect of more barrels from Russia pressuring the spot crude oil market also weighed on futures prices.

Concerns about recession have also dominated the market even with a tightening of supply by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+.

OPEC+, which began a new round of supply cuts in November, holds a policy meeting on December 4.

Meanwhile, the US Federal Reserve is expected to raise rates by a smaller 50 basis points at its December 13-14 policy meeting after four consecutive hikes of 75 basis points.