Oil set for fourth weekly loss with rate hikes darkening outlook

Oil headed for the longest stretch of weekly losses this year as central banks around the world stepped up their fight against inflation at the cost of growth, which is darkening the outlook for energy demand. 

West Texas Intermediate futures fell 3.3 per cent on Friday and was set for a fourth week of declines. The Federal Reserve this week gave its clearest signal yet that it’s willing to tolerate a US recession as the trade-off for regaining control of inflation, while the UK, Norway and South Africa also raised rates.

It’s putting crude on track for its first quarterly loss in more than two years. Prices are also being pushed lower by a surging dollar – with the Bloomberg Dollar Spot Index rising to a record high on Friday – making commodities priced in the currency more expensive for investors.

The oil price decline is driven by a stronger dollar and “the aggressive monetary policy tightening,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.

If crude declines further, the Organization of Petroleum Exporting Countries may be forced to cut output, said Nigeria’s Oil Minister Timipre Sylva. The group and its allies earlier this month agreed to the first supply reduction in more than a year.

There could be further turmoil ahead with a looming European Union ban on Russia oil. Separately, member states are also racing to clinch a political agreement within weeks that would impose a price cap on Russian oil. The push gained momentum after President Vladimir Putin this week announced a mobilization of troops, escalating the war in Ukraine.    

Prices

  • WTI for November delivery retreated 3.3 per cent to $80.75 a barrel as of 7:58 a.m. in New York.
  • Brent for the same month declined 2.9 per cent to $87.80.

Some of the world’s biggest banks are, however, forecasting a rebound in prices because of low inventories, and sustained demand despite recession concerns. JPMorgan Chase & Co. forecasts Brent at $101 a barrel for the final quarter of 2022, while Goldman Sachs Group Inc. sees $125.

“This is going to be a very, very volatile last quarter,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a Bloomberg television interview. There are “just too many different and contradictory factors driving prices right now,” she added.

© 2022 Bloomberg L.P.

Dear user, please be aware that we use cookies to help users navigate our website content and to help us understand how we can improve the user experience. If you have ideas for how we can improve our services, we’d love to hear from you. Click here to email us. By continuing to browse you agree to our use of cookies. Please see our Privacy & Cookie Usage Policy to learn more.