Oil futures finished with a loss on Friday, with U.S. and global benchmark prices ending a streak of weekly gains, as investors juggled recession fears and concerns over demand.
Price action
- West Texas Intermediate crude for July delivery CL.1,
+0.84% CLN22,+0.84% CL00,+0.82% fell $8.03, or 6.8%, to settle at $109.56 a barrel on the New York Mercantile Exchange. Based on the front-month contract, prices ended 9.2% lower for the week following seven weekly gains in a row, according to Dow Jones Market Data. - August Brent crude BRN00,
+0.43% BRNQ22,+0.43% , the global benchmark, settled $6.69 lower, or 5.6%, to $113.12 a barrel on ICE Futures Europe. Prices posted weekly loss of 7.3%, breaking a string of four weekly gains. - Back on Nymex, July gasoline RBN22,
+1.12% fell 4.1% to $3.793 a gallon — down 9.1% for the week. July heating oil HON22,+1.23% fell 5.1% to $4.3398 a gallon, for a weekly loss of 0.6%. - July natural gas NGN22,
+0.88% fell 7% to $6.944 per million British thermal units, the lowest finish since April 28.
Market drivers
Oil prices struggled this week as investors backed away from perceived riskier assets in the wake of a Federal Reserve interest rate hike. Fears that the economy could tip into recession have weighed on commodities and other perceived riskier assets.
“Demand concerns are on the rise because of growing expectations that the global economy is heading for a slowdown in the coming months,” said Fawad Razaqzada, market analyst at City Index and FOREX.com. It’s “possible that the slowdown will be more severe than expected and that’s what investors are worried about the most.”
The Fed rate hike was followed by a bigger-than-expected hike from the Swiss National Bank, and Bank of England also raised interest rates.
“While many see aggressive rate increases as key to curtailing rampant inflation, accelerated hikes also raise the risk of pushing the broader economy into recession as higher rates curb growth,” said Robbie Fraser, manager, global research & analytics at Schneider Electric. “For crude, that’s keeping demand concerns in focus, particularly as consumers in many cases are facing record prices at the pump in the early part of the summer driving season.”
The Biden administration has been “increasingly critical of crude producers and refiners as prices continue ticking higher, with recent reports suggesting the U.S. could look to cap the exports of products like diesel and gasoline,” said Fraser, in a daily note. However, “ultimately, lower prices will likely need to come from the usual fundamental factors rather than temporary legislation.”
Crude prices rebounded Thursday on news that the U.S. had hit Iran with fresh sanctions.
But investors can’t shake worries over demand, with prolonged lockdowns in China the main catalyst, noted Saxo Bank strategists. “On top of that the short-term technical outlook has weakened following several failed attempts to break higher, but given the tight supply outlook, highlighted by the IEA earlier in the week,” they said.
Read: Russia again cuts natural gas exports to European countries
The International Energy Agency said earlier this week that it expects supply growth to lag behind demand, pushing an already tight market witnessing soaring prices into a 500,000-barrel-a-day deficit.
Futures prices for natural gas, meanwhile, fell by more than 21% for the week — the largest one-week percentage loss since early December 2021.
The steep weekly loss follows a drop of a more than 16% on Tuesday amid a delay in the full resumption of operations at a Freeport LNG export facility in Texas that was expected to add to U.S. natural-gas supplies in storage.
