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Futures Movers: Oil prices fall for the week, thanks to economic outlooks ‘denting demand expectations’

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Oil prices settled lower on Friday, contributing to a loss for the week, as worries over a global economic downturn continued to plague the demand outlook.

Price action

West Texas Intermediate crude for November delivery
CL.1,
-3.87%

CL00,
-3.87%

CLX22,
-3.87%

fell $3.50, or 3.9%, to settle at $85.61 a barrel on the New York Mercantile Exchange, prompting the U.S. benchmark to post a 7.6% weekly fall, its first in three weeks, according to Dow Jones Market Data.

December Brent crude
BRN00,
+0.10%

BRNZ22,
+0.10%
,
the global benchmark, was down $2.94, or 3.1%, at $91.63 a barrel on ICE Futures Europe. It was off 6.4% for the week. WTI and Brent oil settled at their lowest since Oct. 3.

November gasoline
RBX22,
-2.73%

declined 2.7% to $2.6309 a gallon, for a 3.8% weekly fall; November heating oil
HOX22,
-2.45%

was down 2.8% at $3.9802 a gallon, leaving it down about 1% for the week.

November natural gas
NGX22,
-3.75%

fell 4.3% to $6.453 per million British thermal units, off 4.4% for the week.

Market drivers

“With many analysts and economists now forecasting a recession as their base case outlook for 2023, demand estimates for everything from energy products to industrial metals are taking a hit,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Oil has given back roughly half of the October gains this week “thanks to the negative shift in policy and economic outlooks denting demand expectations,” he said.

Still, “with OPEC+ getting more serious with price supportive policy measures this month, support in the high $70s to low $80s should hold in the near term,” said Richey.

““With OPEC+ getting more serious with price supportive policy measures this month, support in the high $70s to low $80s should hold in the near term.” ”

— Tyler Richey, Sevens Report Research

Crude prices bounced on Thursday as markets whipsawed in the wake of a U.S. September consumer-price index reading that showed year-over-year core inflation, which strips out food and energy costs, accelerated to a 40-year high. The move cemented expectations for a supersize 75 basis point interest rate increase by the Federal Reserve early next month.

But U.S. stocks bounced back ferociously Thursday after tanking in the wake of the data, ending sharply higher. Crude and other assets perceived as risky were also lifted, while the dollar pulled back. Concerns remain, however, that aggressive rate increases by the Fed and other major central banks could spark a sharp global economic downturn.

“Cross-asset correlations are so tight it seems like broader risk sentiment very much influences interday oil sentiment,” Stephen Innes, managing partner at SPI Asset Management, told MarketWatch.

On Friday, oil gave back a portion of last week’s rally that was attributed in large part to the decision by the Organization of the Petroleum Exporting Countries and its allies — a group known as OPEC+ — to cut production by 2 million barrels a day beginning in November. The actual reduction is expected to be around half that size since several producers were already pumping below their individual targets.

Downbeat assessments for demand growth by OPEC and the International Energy Agency in their monthly reports this week contributed to the weaker tone, wrote analysts at Commerzbank, though they argued that downside for crude was likely to remain limited due to tight global supplies and OPEC+’s resolve to take action if necessary to put a floor under prices.

“The market is set to be just about balanced despite weaker demand in the first half of the year due to the OPEC+ production cuts that will come into effect from November,” the analysts wrote.

That’s due to be followed by a “pronounced undersupply” in the second half of the year,” they said.

“In our opinion, however, the most important argument in favor of high prices is the fact that OPEC+ has clearly signaled that it will do everything in its power to preclude any marked price fall: heavyweight Saudi Arabia appears to view its alliance with Russia as more important in this context than the goodwill of the U.S.,” the analysts wrote.

See: Saudi Arabia defends OPEC+ production cut, suggests White House wanted delay until after midterms

Meanwhile, oil traders are looking to the 20th National Congress of the Chinese Communist Party on Oct. 16, said SPI Asset Management’s Innes.

The outcome of that “matters for the political and economic outlook of the country,” he said, adding that the People’s Bank of China “could cut rates given the low inflation, but fiscal is the key.”:

“Beijing should provide more stimulus for the economy, focusing on supporting consumption rather than investing. Oil should run with that,” said Innes. But any change in COVID-19 policy is unlikely, “as it seems they will not soften on that until early 2023, but many odd things are happening these days. That is a huge wild card, but I don’t think it comes into play for prompt oil until later in the year.” 

Also see: Here’s how much more U.S. households will pay to heat their homes this winter

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