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Oil Rebound Stalls as Recession Fears Outweigh Supply Crunch

Commodities Sep 27, 2022 09:10PM ET
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By Ambar Warrick 

Investing.com-- A rebound in oil prices appeared to be running out of fuel on Wednesday as fears of slowing short-term demand offset a potential supply shortage stemming from OPEC production cuts and a hurricane in the Gulf of Mexico.

Prices remained close to eight-month lows, as rising interest rates and growing fears of an economic slowdown dented expectations of short-term demand. 

London-traded Brent oil futures rose 0.1% to $84.46 a barrel, while U.S. West Texas Intermediate futures fell 0.5% to $78.15 a barrel by 21:19 ET (01:19 GMT). Both contracts rallied nearly 2% each on Tuesday.

Concerns over slowing demand came back into play after data from the American Institute of Petroleum showed U.S. crude stockpiles rose by much more than expected last week, up 4 million barrels as compared to expectations of 333,000 barrels. 

The figures brewed more concerns that rising interest rates and 40-year high inflation would likely weigh on demand in the near term.

Investment bank Goldman Sachs also slashed its oil price forecasts, but said that tightening supply, particularly from Russia, would likely spur a rebound in prices early next year. 

Additionally, the dollar rose back up to near 20-year highs on Wednesday, putting more downward pressure on crude prices. A hawkish Federal Reserve has boosted the dollar this year, and is one of the biggest downward drivers of crude prices. 

Fears of weakening demand largely offset hopes for a potential supply crunch in the United States.

About 11% of U.S. oil production in the Gulf of Mexico, or 190,000 barrels per day (bpd), was shut this week as major producers evacuated some offshore platforms in anticipation of Hurricane Ian. 

Producers including Chevron (NYSE:CVX), Occidental Petroleum (NYSE:OXY) and BP (NYSE:BP) began taking precautions against the storm earlier this week. The Gulf of Mexico accounts for about 15% of total U.S. oil production. 

Additionally, Reuters reported that Russia is set to push for the OPEC+ to cut supply by at least 1 million barrels per day during its monthly meeting next week. Other members of the cartel have also supported production cuts to stabilize oil prices. 

While crude prices have plummeted from highs hit earlier this year, tightening supply, particularly from Russia, may provide an upward boost by the year-end. Demand for heating oil during winter may also support prices.

Oil Rebound Stalls as Recession Fears Outweigh Supply Crunch
 

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Comments (4)
deeeeeez nuttttzzzzFJB
deeeeeez nuttttzzzzFJB Sep 27, 2022 10:01PM ET
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I guess no mention of the SPR bleeding 1M barrels a day right? so all these numbers put out are fake and tainted. how can there be a 4M surplus when we drain 7M barrels a week from the SPR? bleeding the SPR to gain votes in November midterm elections. we are either in a recession now heading there. yet we still need 1M barrels a day of SPR to flood the market. what happens when the SPR is dry or needs to be refilled or the tap is stopped? these articles are biased and omit key facts
Potty Grunner
Potty Grunner Sep 27, 2022 9:29PM ET
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this just makes king dollar held its crown
Potty Grunner
Potty Grunner Sep 27, 2022 9:29PM ET
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this just makes king dollar held its crown
Potty Grunner
Potty Grunner Sep 27, 2022 9:29PM ET
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this just makes king dollar held its crown
 
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