Oil prices slip as IEA warns of global recession

Oil
By Editor_1
By Ahmad Ghaddar

LONDON -Oil prices slipped on Thursday (13) amid concerns that rising inflation will dent fuel demand and International Energy Agency (IEA) warning that the global economy may go into recession.

Brent crude futures fell 23 cents, or 0.3%, to $92.22 a barrel by 1349 GMT. US West Texas Intermediate crude was down 52 cents, or 0.6%, at $86.75 a barrel.

” (The) driver was more rate hikes following the consumer price index (CPI) release, triggering some demand concerns and weighing on risk appetite,” UBS analyst Giovanni Staunovo said on falling prices.

US consumer prices increased more than expected last month and underlying inflation pressures continued to build up, reinforcing expectations that the Federal Reserve will deliver a fourth 75-basis points interest rate hike next month.

The CPI rose 0.4% last month after gaining 0.1% in August, the Labour Department said on Thursday. Economists polled by Reuters had forecast the CPI climbing 0.2%.

Also weighing on prices, was a warning by the IEA that last week’s OPEC+ decision to cut supply by 2 million barrels per day (bpd) may lead to a global recession.

“The OPEC+ … plan … has derailed the growth trajectory of oil supply through the remainder of this year and next, with the resulting higher price levels exacerbating market volatility and heightening energy security concerns,” the IEA said.

The IEA downgraded its oil demand growth estimates slightly for this year to 1.9 million bpd and by 470,000 bpd in 2023 to 1.7 million bpd.

This comes after OPEC on Wednesday (12)  cut its outlook for demand growth this year by 460,000 bpd to 2.64 million bpd, citing the resurgence of China’s COVID-19 containment measures and high inflation. It lowered its 2023 oil demand forecast by 360,000 bpd to 2.34 million bpd.

“The prospect of sustained growth is deteriorating fast because of entrenched inflationary pressure, quantitative tightening, and continuous hikes in borrowing costs, a strong dollar, and COVID-related constraints in the world’s second biggest economy, China,” PVM analyst Tamas Varga said.

Worsening demand for crude oil is contributing to inventory builds. US crude oil stockpiles rose by about 7.1 million barrels for the week ended Oct. 7, according to market sources citing API data.

The energy market is under pressure as well from the US dollar, which has rallied broadly, including against low-yielding currencies like the yen.

The Federal Reserve’s commitment to keep raising interest rates to stem high inflation has boosted yields, making the US currency more attractive to foreign investors.

-Reuters

 

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