Oil treads water as cut in supply target counters other factors

London — Oil prices were stable on Friday as support from a large cut to the Opec+ supply target and a weaker dollar were countered by global recession fears and weak oil demand in China.

Brent crude futures were down 31c, or 0.3%, at $94.26 a barrel at 9.24am GMT while US West Texas Intermediate (WTI) crude futures fell 25c, or 0.3%, to $88.86.

The Brent and WTI contracts both oscillated between positive and negative territory on Friday but were down about 4% over the week after two weeks of gains on concern over the global economy.

The dollar dropped from recent highs this week, making dollar-denominated commodities cheaper for holders of other currencies.

China, the world’s largest crude oil importer, has been fighting Covid-19 flare-ups after a week-long holiday ahead of a Communist Party Congress, where President Xi Jinping is expected to extend his leadership.

The country’s infection tally is small by global standards, but it adheres to a zero-Covid-19 policy that is weighing heavily on economic activity.

The International Energy Agency (IEA) on Thursday cut its oil demand forecast for 2022 and 2023, warning of a potential global recession.

On the bullish side, the Opec+ announced a 2-million barrel per day (bpd) cut to oil production targets, last week. Underproduction among the group means this will probably translate to a 1-million bpd cut, the IEA estimates.

“The prospect of a decrease of about 1-million bpd from next month onwards will sharply reduce a previously expected build in critically low oil inventories over the coming months,” said PVM analyst Stephen Brennock.

Saudi Arabia and the US, meanwhile, have clashed over the decision.

Oil prices were also supported by a steep drawdown in US distillate stocks, though there has been a larger than expected surge in US crude oil in storage.​ 

Reuters