By Adedapo Adesanya
Oil prices plummeted by more than 3 per cent on Friday as global recession fears and weak oil demand, with the Brent crude futures dropping $2.94 or 3.1 per cent to settle at $91.63 a barrel, and the United States West Texas Intermediate (WTI) crude futures falling by $3.50 or 3.9 per cent to $85.61 a barrel.
US core inflation recorded its biggest annual increase in 40 years, reinforcing views that interest rates would stay higher for longer with the risk of a global recession.
The next US interest rate decision is due between November 1 and 2.
Regardless, US consumer sentiment continued to improve steadily in October, but households’ inflation expectations deteriorated a bit, a survey showed.
Analysts note that the improvement in consumer sentiment is being viewed as a negative because it means the Fed needs to break the spirit of the consumers and slow the economy down more, and that’s caused an increase in the Dollar and downward pressure on the oil market.
Weak oil demand, especially in China, outweighed support from a large cut to the Organisation of the Petroleum Exporting Countries and allies (OPEC+) supply target.
China, the world’s largest crude oil importer, has been fighting COVID-19 flare-ups after a week-long holiday. The country’s infection tally is small by global standards, but it adheres to a zero-COVID policy that is weighing heavily on economic activity and, thus oil demand.
The International Energy Agency (IEA) on Thursday cut its oil demand forecast for this and next year, warning of a potential global recession.
The IEA cut its oil-demand growth forecasts by 470,000 barrels daily for 2023 to 1.7 million barrels a day. It also lowered its 2022 oil-demand growth forecast by 60,000 barrels daily, to 1.9 million barrels a day.
Oil demand growth has steadily fallen throughout the year and is forecast to contract in the fourth quarter by 340,000 barrels a day, the IEA said.
The market is still digesting a 2 million barrels per day cut to oil production targets by OPEC+ as underproduction among the group means this will probably translate to a 1 million barrels per day cut, the IEA estimates.
The reduction in the group’s output targets will tighten the oil market further at a moment of extreme vulnerability with few additional sources of supply available to compensate.
Also pressuring prices, the US Dollar index rose around 0.8 per cent. A stronger greenback reduces demand for oil by making the fuel more expensive for buyers using other currencies.
Meanwhile, the number of total active drilling rigs in the United States rose by 7 this week, according to new data from Baker Hughes published on Friday.
The total rig count rose to 769 this week—226 rigs higher than the rig count this time in 2021.
