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Oil declined Friday as markets were pressured by the outlook for interest-rate hikes.
While West Texas Intermediate fell below $75 a barrel on Friday, futures are up almost 5% for the week. Contracts across equity markets were lower amid concern the resolve of central banks to continue their fight against inflation will tip economies into recession.
There are signs that Russian flows to Asia are dipping because of the price cap, while the International Energy Agency said this week that oil prices could rally next year as sanctions squeeze the nation’s supply.
Oil has suffered a rocky end to the year as slack physical markets and limited disruption to supply from Russia weigh on prices. While the outlook has brightened in recent days as US inflation figures slowed and China looked set to reopen its economy, central banks struck a hawkish tone at key interest rate decisions this week.
“The prospect of further tightening put a downer on risk assets,” said Stephen Brennock, an analyst at PVM Oil Associates. “Warnings of more rate hikes across the board reignited fears about economic growth, which in turn weighed on the outlook for oil demand.”
Prices:
- WTI for January delivery fell 2.3% to $74.33 a barrel by 9:50 a.m. in London.
- Brent for February settlement dropped 2.1% to $79.50 a barrel.
China’s rapid dismantling of its Covid Zero policy has prompted optimism over the long-term outlook for demand, although the near-term forecast is uncertain as virus cases surge. Consumption may recover as early as the second quarter of next year, according to Vitol Group’s head of Asia, Mike Muller.
The biggest oil exchange-traded fund has also shown some signs of waning investor appetite over recent days. This week the US Oil Fund posted its largest daily outflow in more than two years.
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