Oil prices decline on concerns over demand and economic data

US crude was pummelled as American gasoline demand drops 8%, but strong Asian demand helps Brent to a first weekly gain in six weeks

Russia said this week that it will not supply crude to countries that decide to impose a price cap on its oil and instead redirect it to countries ready to 'co-operate' with them. Reuters
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Oil prices ended the week down on Friday after the European Union said it would allow Russian state-owned companies to ship oil to third countries under an adjustment of sanctions agreed by member states this week.

Brent, the benchmark for two-thirds of the world's oil, ended Friday down 0.6 per cent to $103.20 a barrel. However, it posted a weekly gain for the first time in six weeks on signs of strong demand in Asia.

West Texas Intermediate, the gauge that tracks US crude, slid 1.7 per cent to $94.70 a barrel. WTI in particular was pummelled over the past two sessions after data showed that US gasoline demand had dropped nearly 8 per cent from a year earlier in the midst of the peak summer driving season, hit by record prices at the pump.

“Despite troubling signs for crude demand across China, Europe and the US, the oil market remains very tight and is not allowing WTI crude to break below the mid-$90s,” said Ed Moya, a senior market analyst at Oanda.

Trading in oil futures has been volatile in recent weeks as traders try to reconcile possibilities of further interest rate hikes that could cut demand against tight supply from the loss of Russian barrels.

Earlier this week, oil prices rallied by about 5 per cent following US President Joe Biden’s visit to the Middle East and amid tight market conditions.

Russian state-owned companies Rosneft and Gazprom will be able to ship oil to third countries in a bid to limit the risks to global energy security.

Under tweaks to sanctions on Russia that came into force on Friday, payments related to purchases of Russian seaborne crude oil by EU companies would not be banned.

"Short term that definitely is a negative headline that probably gave us a little bit of a sell-off here," said Phil Flynn, an analyst at Price Futures group.

The EU announcement comes after Russian central bank governor Elvira Nabiullina said it will not supply crude to countries that decide to impose a price cap on its oil and instead redirect it to countries that are ready to "co-operate" with Russia.

US oil rigs, an early indicator of future output, remained steady at 599 this week, according to data from Texas-based energy services firm Baker Hughes.

The global economy looks like it will be heading into a serious slowdown, just as central banks aggressively reverse ultra-loose monetary policy adopted during the pandemic to support growth, data showed on Friday.

Recent moves in crude oil and interest rate futures anticipate a downturn in the business cycle that will cause oil consumption to dip before the end of the end of the year and into the first three months of 2023.

Investors were also watching for the US Federal Reserve decision on interest rates next week. Fed officials have indicated that the central bank would probably raise rates by 75 basis points at its July 26-27 meeting.

Updated: July 23, 2022, 7:35 AM