Oil

Tight supplies, slumping demand could leave oil prices little changed in near-term

Oil prices will likely react to economic reports from China as the ruling Communist Party wrapped up its five-year national congress.

The congress, which gave Chinese President Xi Jinping an unprecedented third and solidified his grip on power, was presumably the reason the government delayed release of key economic data – ostensibly to avoid bad news during Xi’s coronation.
 
China’s economy grew 8.1 percent last year, but the International Monetary Fund said recently it’s expecting a slowdown to 3.2 percent for 2022. COVID-19 lockdowns continue to disrupt economic activity while a looming real estate crisis also threatens growth.

China is the world’s second biggest economy, after the United States, and imports more oil than any other country.

Bill Weatherburn, a commodities economist at Capital Economics in London, said China may be the factor to watch for crude oil prices this week, particularly given the anticipation that built up because of the delay in data.

“If they are released this week, China’s Q3 GDP growth and crude import volumes will be the ones to watch,” he said. “These should show the toll that ongoing pandemic restrictions have had on the economy and whether China’s oil consumption remains depressed.”

But it was perhaps the chaotic end to the tenure for British Prime Minister Liz Truss that cast something of a cloud over commodities last week. West Texas Intermediate, the U.S. benchmark for the price of oil, lost about a half percent to close trading Friday at $85.05 per barrel.
That close is a good $6 per barrel less than the peak that followed the decision from the Organization of the Petroleum Exporting Countries and its non-member state allies – a group known as OPEC+ – to trim some 2 million barrels per day from their production allotments come November. 

Related: Biden said fuel prices should more closely follow oil. Is the math as ‘simple’ as he claims?
 
The decline in prices, however, does little to ease the economic pressures that are building toward a global recession. Protests over inflation erupted during the weekend across the European Union, but the issue is far more pressing in the United States, where early voiting is underway for what could be a very contentious midterm election.
 
President Joe Biden has been on his back foot for much of his term due in no small part to the strains first from the COVID-19 pandemic and now runaway inflation. Gasoline prices, which are a good 10 percent higher than year-ago levels, are the most ubiquitous indication of consumer-level inflation. 
 
To address those concerns, Biden again said he’d tap the nation’s Strategic Petroleum Reserves to provide a buffer against the decision from OPEC+ and the lingering supply shortages  triggered by Russia’s invasion of Ukraine.
 
Christopher van Moessner, the editor for oil futures news and research at S&P Global Commodity Insights, said crude oil prices could trade in a narrow range given these competing signals on supply.
 
“Prices remain well supported both by the OPEC+ cuts as well as a pledge from the Biden administration to step in to refill the SPR should prices near the $70 per barrel level,” he said. “In the medium term these actions are likely to see prices capped both on the up and downside.”
 
Geopolitical concerns, too, could influence the price of oil this week. Demonstrations in support of women’s rights in Iran are threatening the clerical regime, while Russia continues to step up its bombing in Ukraine.
 
Ed Longanecker, the president of the Texas Independent Producers & Royalty Owners Association, said that he, too, sees prices holding somewhat steady.,
 
“Geopolitical risks, OPEC+ and the anticipated release from the SPR,” he said, “have already been factored in and will have a limited impact on prices in the near term.”

 

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