Oil prices rebounded from a one-year low on Friday as traders bought into severely discounted markets, but they were still headed for steep losses this week as the outlook for petroleum consumption was weakened by growing recession fears and rising interest rates. The U.S.-Canada Keystone pipeline was shut down after a spill in Kansas, but analysts claim that the supply disruption had little effect given the growing demand. Crude markets crashed this week following warnings that a U.S. recession in 2023 will be caused by rising interest rates and inflation.
The price of West Texas Intermediate crude futures increased by 1.2% to $72.31 per barrel, with both contracts recovering from their lowest points since December 2021. Both contracts were expected to lose roughly 10% this week; Brent was projected to have its worst week since late July, while WTI was projected to have its worst weekly drop since late March. The November producer inflation statistics for the United States, which are due later on Friday, now come into focus. The figure is anticipated to indicate a slight decline in inflation from October, but the markets are on the lookout for any indications of stickier-than-expected pricing pressures.
Concerns that pricing pressures would persist longer than anticipated have increased as a result of hotter-than-expected U.S. economic statistics during the past week. The country’s labor market is still tight, and despite rising interest rates, corporate activity is nevertheless showing indications of resiliency. Such an event would force the Fed to increase borrowing prices to levels higher than anticipated, which is anticipated to put more pressure on petroleum consumption. Next week, the central bank is expected to raise interest rates by 50 basis points.
A prolonged increase in gasoline and distillate stockpiles indicated that on-the-ground demand remains muted in the world’s top oil consumer, even if recent statistics revealed that U.S. oil inventories decreased more than anticipated. Nevertheless, a slight decrease in crude prices is possible for 2023 due to rising demand in China, a significant importer. This week, the nation announced the easing of several anti-COVID policies, which may eventually trigger an economic rebound and aid in bringing back the country’s pre-pandemic levels of hunger for crude oil. However, a slew of dismal data revealed this week indicates that the Chinese economy has a long way to go before recovering.
