Oil futures fell for a second day Tuesday, unwinding part of the previous week’s sharp gains scored after OPEC+ agreed to cut crude production, as a downgrade to the 2023 world economic outlook by the International Monetary Fund fed fears over a recession.
Price action
-
West Texas Intermediate crude for November delivery
CL.1,
-2.21% CLX22,
-2.21%
fell $1.79, or 2%, to $89.34 a barrel on the New York Mercantile Exchange with front-month prices on track for the lowest finish since Thursday. -
December Brent crude
BRN00,
-2.12% BRNZ22,
-2.12% ,
the global benchmark, fell $1.75, or 1.8%, to $94.44 a barrel on ICE Futures Europe. -
Back on Nymex, November gasoline
RBX22,
-0.96%
fell 0.6% to $2.6083 a gallon, while November heating oil
HOX22,
-3.58%
dropped 3.6% to $3.7745 a gallon. -
November natural gas
NGX22,
-0.11%
was up 1.2% at $6.515 per million British thermal units.
Market drivers
Oil prices declined as “recession fears take the attention away from a tightly supplied market,” said the Kansas City energy team at StoneX, in Tuesday’s newsletter.
The International Monetary Fund on Tuesday said it’s downgrading its outlook for the world economy for 2023, with the global economy likely to eke out growth of just 2.7% next year, down from the 2.9% it had estimated in July. The IMF cited a list of threats that include Russia’s war against Ukraine, chronic inflation pressures, punishing interest rates and the lingering consequences of the global pandemic.
Meanwhile, Shanghai is “going into a version of quarantine, along with other megacities in China,” said StoneX’s Kansas City energy team, adding that COVID-19 infections have risen to their highest point since August this week, following the National Holiday, “Golden Week”, which was earlier this month.
Last week, oil rallied off eight-month lows, boosted after the Organization of the Petroleum Exporting Countries and its Russian-led allies — known together at OPEC+ — agreed to cut their output quotas by 2 million barrels a day beginning in November. The actual reduction is expected to be around half that since many producers were already producing below their targets.
The Platts survey by S&P Global Commodity Insights released Tuesday showed that the OPEC+ alliance boosted crude production by 170,000 barrels per day in September, to the group’s highest since April 2020.
However, the gap between the group’s quotas and actual production remained at 3.6 million barrels a day, roughly the same as in August, the survey showed.
Oil was also showing weakness Tuesday as investor appetite for risky assets suffered amid volatility in the U.K. government bond market that required further intervention by the Bank of England and expectations that aggressive interest rate increases by the Federal Reserve and other major central banks could spark a sharp global economic downturn.
The OPEC+ decision does underscore tightness in physical markets and should help keep crude prices supported, wrote analysts at Commerzbank. “That said, concerns about demand in view of the sharply rising interest rates in the US, the escalating energy crisis in Europe and the zero-COVID policy in China should preclude any more marked upswing,” they wrote.
Commerzbank sees a “trading corridor” close to current levels, while updating their year-end forecast for Brent to $95 a barrel from $90. They see Brent at $100 a barrel by the end of 2023, versus a previous forecast of $95, due to an expected supply deficit and persistently low inventory levels.
