Oil Prices Further Drop on Growing Recession Fears

By Adedapo Adesanya

Oil prices settled lower in volatile trading on Friday, with both benchmarks recording their biggest weekly declines in months.

Brent crude settled 5 cents lower at $76.10 per barrel, while the United States West Texas Intermediate (WTI) crude shed 44 cents to trade at $71.02 a barrel.

Both crude benchmarks posted weekly losses of around 10 per cent each. It was the biggest weekly decline since April for the U.S. WTI futures and since early August for Brent.

Growing recession fears negated any supply woes after weak economic data from China, Europe and the US.

Oil prices had found some support and risen more than 1 per cent earlier in the session after Russian President Vladimir Putin said the world’s biggest energy exporter could cut output in response to a price cap on its crude oil exports.

However, a slightly higher-than-expected rise in US producer prices in November and news of a partial restart on the Keystone Pipeline undid those gains and pushed the benchmarks more than a dollar lower.

The reports were published ahead of the Federal Reserve’s two-day policy meeting next week, at which the US central bank is expected to start dialling back the size of its interest rate increases. Consumer price data next week will shed more light on the path of inflation.

The report from the Labour Department on Friday also showed underlying producer prices increasing at their slowest pace since April 2021 on a year-on-year basis.

Keystone shut earlier this week after a 14,000-barrel oil leak in Kansas.

The cause of the leak, which occurred in Kansas about 20 miles (32 km) south of a key junction in Steele City, Nebraska, is unknown. It is the third spill of several thousand barrels of crude on the pipeline since it first opened in 2010.

In China, surging COVID-19 infections will likely depress economic growth in the next few months despite some restrictions being eased, analysts said.

The European Central Bank will also likely lift its deposit rate by 50 basis points next week to 2 per cent, even as the eurozone economy is believed to already be in recession.