Oil futures were flat to slightly higher Friday, but on track for weekly losses as fears of recession outweighed tight global supplies of crude.
Price action
-
West Texas Intermediate crude for August delivery
CL.1,
+0.11% CLQ22,
+0.11%
was flat at $102.73 a barrel on the New York Mercantile Exchange, on track for a 5.3% weekly fall. -
September Brent crude
BRN00,
+0.33% BRNU22,
+0.33% ,
the global benchmark, rose 32 cents, or 0.3%, to $104.97 a barrel on ICE Futures Europe, but headed for a 6% weekly fall. -
Back on Nymex, August gasoline
RBQ22,
-0.76%
fell 0.8% to $3.3926 a gallon, while August heating oil
HOQ22,
-1.85%
dropped 1.9% to $3.6055 a gallon. -
August natural gas
NGQ22,
-1.33%
dropped 1.3% to $6.213 per million British thermal units.
Market drivers
Mounting fears of recession were blamed for sinking crude prices this week, with WTI falling below $100 a barrel and entering a bear market. Crude, and other commodities, rebounded on Thursday, lifted as news reports said China was considering a $220 billion stimulus.
See: Commodity ETFs tumble on recession worries, but catch a rally on ‘Reinflation Day’
Risks remain around oil flows from Kazakhstan, after a Russian court earlier this week ordered the halting of loadings from the CPC terminal on Russia’s Black Sea coast, noted Warren Patterson, head of commodities strategy at ING, in a note.
The court ordered a 30-day stoppage in loadings, though Kazakhstan has said oil flows remain unaffected, he wrote, noting that the CPC terminal exports around 1.3 million barrels a day of crude, “so this is a concern for the oil market, particularly at a time when there are already plenty of supply worries for the global oil market.”
More broadly, analysts note that the oil market remains tight, underlined by the premium for near-term contracts over longer-dated futures — a phenomenon known as backwardation.
“The physical market is pricing in scarcity while the financial market is pricing in recession. Second, despite the recent plunge in oil prices, term structure remains relatively intact, surprisingly,” said Michael Tran, analyst at RBC Capital Markets, in a note.
Recession fears, however, should be respected, he said. In a recessionary scenario, in which demand suffers at a similar rate to previous downturns, “we could see a scenario in which spot prices retreat into the mid $70/bbl range in the back half of this year,” Tran said. “The bullish conviction is high, but sentiment is soft among the commodity trading community. Third, while the debate regarding the health of the consumer remains an open ended question, large-scale demand destruction is rare.”
