Oil prices fall about 3% on recession worries

Oil prices dropped in a choppy trading session on Friday as global recession fears and weak oil demand, especially in China, outweighed support from a large cut to the Opec+ supply target.

Brent crude futures were down $1.49, or 1.6 per cent, at $93.08 a barrel at 1330GMT while US West Texas Intermediate (WTI) crude futures fell $1.64, or 1.8 per cent, to $87.47.

The Brent and WTI contracts both oscillated between positive and negative territory on Friday but were down around five per cent on the week after two weeks of gains on concern over the global economy.

China, the world’s largest crude oil importer, has been fighting Covid 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.

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 on November 1-2.

“The significant downward corrections of (oil) demand forecasts, above all for next year, have been depressing prices,” Commerzbank analysts said.

“We envisage little further downside potential, however. 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.”

The Organisation of the Petroleum Exporting Countries and allies, together known as Opec+, last week announced a two million barrel per day (bpd) cut to oil production targets.

Underproduction among the group means this will probably translate to a one million bpd cut, the IEA estimates.

Saudi Arabia and the United States, meanwhile, have clashed over the decision.

Oil prices were also supported by a steep drawdown in US distillate stocks, though there has been a larger than expected surge in US crude oil in storage. — Reuters