WTI, Brent Post Weekly Losses Amid Inflation, Growth Concerns

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby-delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange traded sideways on Friday, with both benchmarks posting their first weekly losses since early September. Futures were under pressure from growing concerns over slowing economic growth and rising crude oil U.S. inventories, with market participants looking ahead to next week's meeting among Organization of the Petroleum Exporting Countries and Russia-led partners for additional clues on the global supply-demand disposition for the final months of the year.

Friday's mixed price move comes ahead of next week's OPEC+ meeting that is expected to decide on moving ahead with a 400,000-barrel-per-day (bpd) production increase for December previously agreed to in July, sticking to its measured approach in relaxing output cuts initially put in place in April 2020 in response to the global COVID pandemic. With OPEC+ set to increase production by 400,000 bpd in November, output cuts by the alliance next week will be 4.159 million bpd below their pre-pandemic production rate.

Ahead of the Nov. 4 ministerial meeting, OPEC+ technical panel revised sharply lower their expectations for how tight the global oil market will be in the fourth quarter, with a global supply deficit now seen at just 300,000 bpd in the three months ending in December. That's much smaller than the 1.1 million-bpd shortfall projected earlier this month.

New COVID-19 outbreaks have begun popping in a host of major oil consuming nations, including China and Russia. China adopted a "zero-COVID" policy nearly 18 months ago and doubled down on strict quarantine measures this month to contain the viral spread that is slowing growth in the world's second largest economy. Russia -- a key supplier of natural gas and oil -- announced a nationwide lockdown beginning next week, with new COVID-19 cases and deaths spiking once again heading into the winter.

"We're not out of the woods yet," Saudi Arabia oil minister Prince Abdulaziz bin Salman said in a Bloomberg television interview on Oct. 24. "One needs to be careful also of taking things for granted when the crisis has been somewhat contained but is not necessarily over."

Oil futures came under selling pressure this week amid growing concerns over rising inflation domestically and a slowdown in the post-pandemic recovery. U.S. gross domestic product growth fell to its weakest pace in more than a year in the third quarter, down to 2% from 6.7% seen in the April-July period, said Bureau of Economic Analysis on Thursday. Consumer sentiment showed no improvement this month after plunging to decade-low late summer, showed the data from University of Michigan this morning, with nearly one in five households concerned that rising inflation is weighing on living standards.

"The positive impact of higher income expectations and the receding coronavirus has been offset by higher rates of inflation and falling confidence in government economic policies," said Surveys of Consumers chief economists Richard Curtin. "The patterns of consumer reactions to rising prices represent the preconditions that can promote an escalating inflation rate during the year ahead."

Against this backdrop, U.S. Federal Open Market Committee meets on Nov. 3-4, with consensus calling for the U.S. central bank to announce the start of tapering of its $120 billion a month in its bond-buying stimulus program. Most federal reserve officials said in recent weeks that the economy is ready for the withdrawal of stimulus, while a few hawkish members of the committee have begun talking about lifting intertest rates, which is much sooner than previously anticipated and would undoubtedly support the dollar.

"The next several months are critical for assessing whether the high inflation numbers we have seen are transitory," Fed governor Christopher Waller said on Oct. 19. "If monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022."

On the session, NYMEX West Texas Intermediate futures for December delivery gained $0.76 to $83.57 per barrel (bbl), with the six-month calendar spread ending the session at $8.15 bbl -- a better-than-eight-year high. ICE December Brent expired near flat at $84.38 per bbl, with the January contract settling at $83.72 per bbl in the backwardated market. NYMEX RBOB November futures advanced 2.7 cents to expire at $2.4620 per gallon, widening its discount with the December contract to 9.27 cents. NYMEX ULSD November futures declined 2.01 cents to expire at $2.4964 per gallon, with its premium against the December contract narrowing to 1.77 cents.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges