Oil Stays Volatile as Slowdown Risks Rival Signs of Tight Supply

Oct 19, 2022

(Bloomberg) Oil extended its volatile run as continued US efforts to curb prices and concerns over a global recession counter signs of tight supply.

West Texas Intermediate swung between gains and losses, with prices oscillating within a $17 band since late-September. The mixed picture is also showing in the shape of the futures curve — while key timespreads are indicating supply restrains, several gauges have softened to the weakest levels since late September in recent days.

Crude has pulled back from its recent highs, with the market remaining caught between the twin forces of production cuts by the Organization of Petroleum Exporting Countries and its allies alongside the looming threat of a major slowdown in global growth. Meanwhile upcoming European Union sanctions on Russian oil exports could send shockwaves through the global tanker market, and have already caused some Indian refiners to halt spot purchases before the latest sanctions take effect early December.

US may replenish stockpiles when WTI is at or below $67 to $72 a barrel

“Liquidity and risk deployment is low and investor positioning has been subdued,” RBC Capital Markets analysts including Michael Tran and Helima Croft wrote in a note to clients. “Global inventories remain tight, but the global macro backdrop is arguably the weakest in a decade.”

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US officials are planning to release 15 million barrels from the country’s emergency reserves, and may consider significantly more this winter. It’s the final tranche from a program the White House began in the spring. It will will also seek to replenish its emergency stockpiles by buying when WTI is priced at or below $67 to $72 a barrel.

Prices:
WTI for November delivery rose 0.6% to $83.34 a barrel at 10:09 a.m. in London. The November contract expires on Thursday. The more active December futures were 0.6% higher at $82.58. Brent for December settlement increased 0.6% to $90.56 a barrel.

The EU’s eighth round of sanctions could end up affecting a swath of tankers. It states that if a vessel owner transports Russian crude above an agreed price threshold, their ship would be banned from getting EU services needed to ship the commodity, such as insurance, “in the future.”

Adding to supply concerns, the restoration of full oil output at the Kashagan field in Kazakhstan has been delayed as the operator keeps working on a solution to a gas leak, people familiar with the matter said. Kazakhstan is Central Asia’s largest producer and one of the main alternatives to Russian crude for European buyers.