Oil prices fluctuate as investors worry about demand outlook

Opec slashed its oil demand growth forecast for 2022 and 2023

FILE PHOTO: A pumpjack brings oil to the surface in the Monterey Shale, California, U.S.  April 29, 2013.  REUTERS/Lucy Nicholson/File Photo
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Oil prices fluctuated on Thursday as recession risks continue to dent the global demand outlook despite a tight crude market.

Brent, the benchmark for two thirds of the world’s oil, was trading about 2.52 per cent higher, at $94.78 a barrel at 10.00pm UAE time on Thursday. West Texas Intermediate, the gauge that tracks US crude, was up 2.58 per cent at $89.52 a barrel.

Opec lowered its global oil demand forecast for 2022 and 2023 on Wednesday, citing Covid-19 restrictions in China, economic challenges in Europe and inflationary pressures in key economies.

Global oil demand will increase by 2.6 million barrels per day in 2022, lower than the group's previous estimate of 3.1 million bpd, it said.

“Oil prices continue to struggle to gain strength as traders are largely concerned about the worsening demand outlook,” said Naeem Aslam, chief market analyst at Avatrade.

“What matters the most for oil traders now is a revival of oil demand, and if this doesn’t pick strength, oil prices are likely to continue to move lower.”

Demand concerns remain high on growing fears of a recession.

Earlier this week, the International Monetary Fund cut its growth forecast for 2023 as the global economy continues to be affected by the war in Ukraine, broadening inflation pressures and a slowdown in China.

Concerns about inflation continue to rise in the US after producer prices rose more than expected in September.

The US producer price index (PPI) increased by 0.4 per cent last month, the country's Bureau of Labour Statistics said on Wednesday.

“A hot US PPI report suggests inflation is proving to be sticky and will keep the risk elevated that the Fed will send the economy into a recession,” said Edward Moya, a senior market analyst at Oanda.

Meanwhile, China, the world’s largest crude oil importer, is again having trouble with Covid-19 as Shanghai and Shenzhen infections rise, he said.

Despite the worsening outlook for oil demand, supply is expected to remain tight going into 2023.

The US Energy Information Administration (EIA) lowered its forecast for US crude production in 2023 to 12.36 million bpd, down by about 300,000 bpd from its previous forecast.

US production has not “materially” changed this year as oil and gas producers focus on profitability rather than investment, said Daniel Richards, Mena economist at Emirates NBD.

“A lack of supply growth from the US will help to keep markets relatively tight next year,” he said.

The EIA expects Brent to average $93 a barrel in the fourth quarter and $95 a barrel in 2023.

Oil prices gained about 10 per cent last week after the 23-member Opec+ group of oil producers announced an output cut of 2 million bpd.

Following the announcement, Goldman Sachs raised its oil price forecast by $10 to $110 a barrel for the last three months of the year, and to $115 a barrel for the first quarter of 2023.

Updated: October 13, 2022, 6:03 PM