Oil Swings as Tight Crude Market Competes With Economy Fears

Jul 25, 2022

(Bloomberg) Oil fluctuated as concerns about weakness in the global economy jostled with signs of tight physical crude supply.West Texas Intermediate reversed declines as the dollar wiped out an earlier gain, making commodities priced in the currency more attractive. Still, crude’s futures market is facing bearish economy and policy signals with the US Federal Reserve expected to approve another big interest-rate hike this week as it combats surging inflation. That would pile pressure on demand. German business confidence tanked, indicating it is on the brink of a recession.

The fears are forcing some traders to look past signs of deep tightness in the availability of actual oil barrels. Global benchmark Brent’s nearest contract is more than $5 higher than the next month, the most this month, indicating concerns over short-term supply. Some buyers in Asia have been paying premiums of more than $20 a barrel to secure certain crude grades.

“While prices have been volatile, I expect renewed downward pressure on crude,” said Vandana Hari, founder of Vanda Insights. The Fed meeting “will likely serve as a fresh reminder of the economic headwinds.”

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WTI crude futures capped a third weekly decline on Friday

The oil market has seen bouts of volatility recently, characterized by sharp swings and low liquidity, as investors juggle competing supply and demand outlooks. Crude is up around 25% for the year, although futures have given up most of the gains seen after Russia’s invasion of Ukraine in late February.

Russia’s invasion has prompted many consumers to pivot away from Moscow, with Saudi Arabia and Iraq filling in large part of that gap in Europe. The US is championing a price cap on Russian crude to limit revenues flowing to the Kremlin to fund its war, and the Treasury Department’s No. 2 official will be in Europe this week to rally support for the measure.

Prices
WTI for September delivery rose 1.1% to $95.77 a barrel at 10:44 a.m. in London, after earlier dropping as much as 1.8%. Brent for the same month added 1.2% to $104.47 a barrel.

A segment of the massive Keystone pipeline that delivers Canadian crude to the key US storage hub at Cushing restored normal operations late Friday following a power disruption. Service was still subject to mid-month capacity reductions, according to a bulletin obtained by Bloomberg.