LONDON: On Friday, the price of oil plummeted by more than $3 a barrel and was on track for a second consecutive weekly decline due to concerns about weakening demand in China and further hikes in U.S. interest rates.
As a result of the decline, the market structure of both oil benchmarks evolved in a manner reflective of diminishing supply worries. As a result of Russia’s invasion of Ukraine, crude prices have gotten close to all-time highs this year.
According to sources, a surge in COVID-19 instances has been observed in China, which is attempting to reduce crude imports from some exporters. In contrast, remarks from some Federal Reserve officials this week have dashed hopes for less aggressive U.S. rate hikes.
“At present, optimistic price drivers are scarce,” said Stephen Brennock of oil dealer PVM. With the E.U. crude oil embargo coming into effect in less than three weeks, oil prices might still conclude the year with a bang.
Brent crude was down $3.17, or 3.5%, to $86.61 per barrel at 14:45 GMT, having hit its lowest price since September 28 at $85.80 per barrel. At $77.97, U.S. West Texas Intermediate (WTI) crude fell $3.67, or 4.5%.
Both indices are on course for a second consecutive weekly loss, with Brent poised for a more than 9% fall.
According to statistics from Refinitiv Eikon, the near-term WTI contract moved into contango for the first time since 2021, signaling a reduction in supply-related concerns.
Brent remained in the opposite structure, backwardation, even though the premium of nearby Brent over barrels loading in six months fell as low as $3 a barrel, the lowest level since April.
Even with the European Union’s ban on Russian crude looming on December 5 and the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, restricting supplies, recession concerns have dominated this week.
“On the demand side, there are fears of an economic slowdown,” Naeem Aslam of Avatrade said. The route of least resistance appears to favor the downside.
According to a Reuters poll, four consecutive rate hikes of 75 basis points (bps) are anticipated to be followed by a rate hike of 50 basis points (bps) at the Fed’s policy meeting on December 13-14.
OPEC+, which began a fresh round of production reductions in November, conducts a meeting on policy on December 4.