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Oil declined at the start of the week as concerns about an economic slowdown overshadowed signs of a tight physical crude market.
West Texas Intermediate fell below $94 a barrel after capping a third weekly decline on Friday, the longest streak of losses this year. The Federal Reserve is expected to approve another big interest-rate hike this week as the central bank combats surging inflation, piling pressure on demand.
“While prices have been volatile, I expect renewed downward pressure on crude,” said Vandana Hari, founder of Vanda Insights. The Fed meeting “will likely serve as a fresh reminder of the economic headwinds.”
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The oil market has seen bouts of volatility recently, characterized by sharp swings and low liquidity, as investors juggle competing supply and demand outlooks. Crude is up around 25% for the year, although futures have given up most of the gains seen after Russia’s invasion of Ukraine in late February.
Russia’s invasion has prompted a pivot away from the OPEC+ producer by many consumers, and that’s led to Saudi Arabia and Iraq diverting more oil toward Europe. The US is championing a price cap on Russian crude to limit revenues flowing to the Kremlin to fund its war, and the Treasury Department’s No. 2 official will be in Europe this week to rally support for the measure.
While oil has been whipsawed by escalating fears that the US is heading for a recession, veteran commodities trader Pierre Andurand says oil demand may exceed expectations even if the global economy falters. Consumption growth has lagged behind its four-decade trend over the past few years because of virus lockdowns, and should revert back to normal levels, he said on Twitter.
The oil market is steeply backwardated, a bullish pattern market by near-term prices commanding a premium to later-dates ones. Brent’s prompt spread was $4.93 a barrel in backwardation, over $1 higher than the start of the month.
A segment of the massive Keystone pipeline that delivers Canadian crude to the key US storage hub at Cushing restored normal operations late Friday following a power disruption.
Source:Oil Drops as Concerns Over Slowdown Offset Tight Crude Market (energyconnects.com)