Oil futures gave up modest gains Wednesday after the Organization of the Petroleum Exporting Countries cut its outlook for growth in crude demand in 2022 and 2023 in the face of mounting economic fears.
Traders were also digesting a hotter-than-expected U.S. producer price index reading, which was seen reinforcing expectations for aggressive Federal Reserve interest rate increases.
Price action
-
West Texas Intermediate crude for November delivery
CL.1,
-1.40% CL00,
-1.40%
fell 46 cents, or 0.5%, to $88.89 a barrel on the New York Mercantile Exchange. -
December Brent crude
BRN00,
-1.21% BRNZ22,
-1.21% ,
the global benchmark, was down 30 cents, or 0.3%, at $93.99 a barrel on ICE Futures Europe. -
Back on Nymex, November gasoline
RBX22,
-1.10%
rose 0.2% to $2.633 a gallon, while November heating oil
HOX22,
+1.43%
was up 1,6% at $3.994 a gallon. -
November natural gas
NGX22,
+1.47%
rose 1.9% to $6.719 per million British thermal units.
Market drivers
OPEC, in its monthly report, forecast oil demand to grow by 2.64 million barrels a day, or mb/d, this year, down from 3.1 mb/d in its September report. Growth in 2023 is now seen at 2.34 mb/d versus last month’s estimate of 2.7 mb/d.
The revised estimates come after the cartel and its Russian-led allies last week agreed to cut production by 2 million barrels a day, a move that fed a sharp bounce by crude futures, angered the Biden administration and strained relations between the U.S. and Saudi Arabia, OPEC’s de facto leader.
The cut is expected to result in a reduction of around half the 2 million barrel a day figure because several producers were already pumping below their individual targets. The cut was still seen as substantial given continued signs of tight physical supplies.
OPEC’s production quote sent oil sharply higher last week, while President Joe Biden’s fiscal policy options are limited and U.S. producers appear unlikely to take the opportunity to boost market share, said Stewart Glickman, analyst at CFRA, in a note.
“This combination, in our view, probably supports elevated crude oil prices over the next 12 months — but recession risk remains,” he wrote.
Meanwhile, fears that aggressive monetary tightening by the Fed and other central banks could spark a sharp global economic downturn were reinforced after the September producer price index showed inflation at the wholesale level continued to run hotter than expected.
