Oil prices increased on Friday as renewed global supply concerns from Russia’s fuel export ban countered demand fears driven by macroeconomic headwinds and high-interest rates. Brent crude futures were up 52 cents, or 0.56%, at $93.82 a barrel by 0933 GMT, while U.S. West Texas Intermediate crude (WTI) futures rose by 73 cents, or 0.81%, to $90.36 a barrel. Both benchmarks were on track for a small weekly drop after gaining more than 10% in the previous three weeks amid concerns about tight supply and escalating geopolitical tensions.
The Russian government temporarily banned gasoline and diesel exports to countries outside a circle of four ex-Soviet states with immediate effect to stabilize domestic fuel prices, state media said. Analysts said this will likely lead to a drawdown in Russian crude inventories and further tightening of the market.
Traders said OPEC-plus output cuts continue to support the market despite a weakening demand outlook. The risk of a demand slowdown is rising as eurozone economic data points to a contraction in the third quarter, while a slowdown in China’s economy is also expected. As do political uncertainties such as the US-China trade row and high-interest rates dampen demand.
But despite the supply-side challenges, a recovery in oil prices is still expected. The U.S. dollar has weakened against other major currencies, which usually boosts oil prices by making them more affordable for non-dollar buyers. G.S. Commodities Research also said emerging market equities have underperformed developed markets and that a strong dollar may limit the extent of any rebound in demand.
While supply disruptions are unusual, the global economy has seen similar disruptions, and most have recovered relatively quickly. However, the current disruptions are affecting complex supply networks that are stretched to their limits, causing distortions in demand due to changes in consumer purchasing patterns and adding to the complexity of the problem by multiplying its impact on multiple fronts.
A critical factor in the short term is how much the shutdown of refineries and other energy production will affect demand. In the longer term, the risk of a global recession and the need to reduce carbon emissions will drive investment in cleaner technologies, which should keep oil demand growing.
Despite the recent supply-side push, several hurdles remain for oil prices to reach $100 per barrel. Commerzbank analysts said the risk that the U.S. Federal Reserve continues to tighten monetary policy, which would dampen growth and oil demand, remains a significant concern. The risk of a slowdown in China’s economy could also weigh on the oil price, as it might reduce appetite for oil and other commodities. But if China’s economic slowdown proves temporary, and oil and other commodity markets recover the world’s biggest energy user will likely be among the first to see more robust demand, the bank’s analysts added. They believe oil prices will remain nearly $100 in the next few months.
