- WTI and Brent fall more than 10% over the week
- Deepest weekly drop since April for WTI, since August for Brent
- Market swings into contango, indicating weak demand
- Weak economic prospects in China, the United States and Europe weigh on demand
Dec 9 (Reuters) – The price of oil stabilized on Friday in volatile trading, with both benchmarks posting their biggest weekly declines in months as growing fears of a recession quashed any supply problems after weak economic data from China, Europe and the United States.
U.S. West Texas Intermediate crude was 44 cents lower at $71.02 a barrel, a new low for 2022. Brent crude was 5 cents lower at $76.10 a barrel.
“Any worries about supply are secondary to worries about the economy,” said Mizuho analyst Robert Yawger.
Oil prices found some support and rose more than 1% earlier in the session after Russian President Vladimir Putin said the world’s biggest energy exporter could cut output in response to a peak in oil prices. price of its crude oil exports.
However, a slightly higher than expected rise in US producer prices in November and news of a partial restart of the Keystone pipeline reversed those gains and pushed benchmarks more than a dollar lower. Keystone closed earlier this week after a 14,000 barrel oil leak in Kansas.
The US producer price index (PPI) rose slightly more than expected in November amid rising service costs, according to a report from the US Department of Labor.
The increase could make it more likely that the Federal Reserve will “step on the accelerator” on interest rate hikes, heightening fears of an impending recession, Yawger said.
Both crude benchmarks posted weekly losses of around 10% each. This is the largest weekly decline since April for US WTI futures and since early August for Brent.
Yawger and Walter Zimmerman, chief technical analyst at ICAP, warned that if U.S. crude fell below $70 a barrel, it could go into a tailspin and hit the low $60 range in the coming sessions.
The market structure for WTI contracts shifted to trading in contango over the following year for the first time since November 2020, with short-term delivery contracts cheaper than a year later
A market in contango suggests less concern about the current supply situation due to weakened demand and encourages traders to hoard barrels.
In China, the upsurge in COVID-19 infections will likely dampen economic growth in the coming months despite the easing of some restrictions, economists have said.
Economists polled by Reuters expect the US economy to experience a short and shallow recession in the coming year. Forecasters expect the US Federal Reserve to hike rates by 50 basis points (bps) on December 14.
The European Central Bank will also likely raise its deposit rate by 50 basis points next week to 2%, even as the eurozone economy is already in recession.
Reporting by Shariq Khan in Bengaluru; Additional reporting by Florence Tan in Singapore and Mohi Narayan in New Delhi; Editing by Arun Koyyur, Mark Potter and Nick Zieminski
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