Oil Drops on Recession Fears Amid Positive China Outlook

October 18, 2022
oil demand worries

By Adedapo Adesanya

Oil recorded a marginal slide on Monday in choppy trading as fears that high inflation and energy costs could drag the global economy into recession offset China’s continuation of loose monetary policy.

Brent crude futures were down 1 cent or 0.01 per cent to $91.62 a barrel, while the United States West Texas Intermediate (WTI) crude was down 15 cents or 0.2 per cent to $85.46 per barrel.

China’s central bank rolled over maturing medium-term policy loans on Monday while keeping its key interest rate unchanged for a second month, in a signal that loose monetary policy would be maintained.

The world’s largest oil producer will also greatly increase domestic energy supply capacity and step up risk controls in key commodities, including coal, oil, gas and electricity.

Analysts warn that China’s adherence to its zero-COVID policy has continued to increase the uncertainties about the country’s economic growth.

Meanwhile, a strong US Dollar and the likelihood of further interest rate increases by the Federal Reserve are helping to contain price gains.

Inflation in the United States remains stubborn, and growth in European Union countries is expected to weaken to 0.5 per cent, according to an official of the International Monetary Fund (IMF).

Oil supply is likely to remain tight after OPEC and allies, including Russia, pledged on October 5 to cut output by 2 million barrels per day while building tension between the Organisation of the Petroleum Exporting Countries, OPEC’s de facto leader Saudi Arabia and the United States could foreshadow more volatility.

Meanwhile, OPEC and its allies, known as OPEC+ output cuts, attracted funds back to the oil markets, with continued heavy buying of crude oil futures and options for a second straight week.

To ease the supply crunch, oil output in the biggest US shale oil basin is due to rise by about 50,000 barrels per day to a record 5.453 million bpd in November, the US Energy Information Administration (EIA) said on Monday.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

1 Comment

  1. I think the article offers a well-rounded view of the current oil market. I appreciate that it covers both the positive aspects, such as China’s continuation of loose monetary policy and the negative aspects, such as the potential for a global economic recession. However, I believe that there are some critical points that the author has missed.

    First, the author fails to mention the potential impact of oil demand on price. While it is true that supply is tight, it is also true that demand has been relatively low in recent months. This is partly due to the global economic slowdown, which has led to a decrease in travel and industry. If demand remains low, prices could fall even further.

    Second, the author does not discuss the potential impact of other commodities on oil prices. For example, if coal prices increase, this could lead to higher electricity prices, which in turn could lead to higher oil prices. Similarly, if the price of natural gas increases, this could lead to higher heating costs, leading to higher oil prices.

    Third, the author does not address the issue of transportation costs. As oil prices increase, it becomes more expensive to transport goods and materials. This could lead to inflationary pressures as businesses pass their higher costs to consumers.

    Fourth, the author fails to mention the potential impact of politics on oil prices. For example, if there is a conflict in the Middle East, this could lead to higher oil prices. Similarly, if the United States imposes sanctions on a major oil-producing country, this could also lead to higher prices.

    Overall, I believe that the article offers a good overview of the current oil market. However, I think it fails to address some of the critical issues that could impact prices in the future.

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