Oil prices surge 4% but still post fourth weekly drop amid growing demand concerns

US crude inventories, an indicator of fuel demand, have increased by 3.6 million barrels, official data shows

The SoHo neighbourhood in New York City. The US recorded an unexpected slowdown in inflation. Reuters

Oil prices finished the week strong on Friday, following a nearly 5 per cent drop the previous day, but still posted a fourth straight week decline as growing crude demand concerns offset prospects of tighter supply.

Brent, the benchmark for two thirds of the world’s oil, surged 4.12 per cent, or $3.19, to settle at $80.61 a barrel. West Texas Intermediate, the gauge that tracks US crude, jumped 4.1 per cent, or $2.99, to close at $75.89 a barrel.

New selling emerged after “prices failed to reach safer grounds earlier in the week when global stock markets and general risk appetite surged following an unexpected slowdown in US inflation”, Ole Hansen, head of commodity strategy at Saxo Bank, said in a research note.

“The oil market focus has instead been turning to the short-term demand outlook, which according to the futures market is showing signs of weakening."

Futures also came under pressure from an unexpected rise in US crude stocks.

US crude inventories, an indicator of fuel demand, increased by 3.6 million barrels in the week that ended on November 10, according to the US Energy Information Administration (EIA).

Analysts polled by Reuters expected a build of 1.8 million barrels.

Meanwhile, total petroleum inventories decreased by 1.5 million barrels last week, while distillate stocks fell by 1.4 million barrels in the same period, the EIA data showed.

The decline in prices came despite predictions of a tight crude market in the fourth quarter by Opec and the International Energy Agency this week.

On Tuesday, the IEA raised its oil demand growth forecast for 2023 and 2024 on record demand in China and “resilient” US crude deliveries.

Opec also raised its forecast for oil demand growth for 2023 and said it expected record demand from China and India in the fourth quarter.

Goldman Sachs on Thursday said the fall in oil prices had been driven by “one-off” factors, concentrated in the US, Iran and Russia, but added that demand growth would remain “solid” in 2024.

“We expect the oil market to tighten at a moderate pace, but preserve significant spare capacity to handle tightening shocks, which effectively delays the super cycle,” the US investment bank said.

It expects the Opec+ alliance to ensure Brent in a $80 to $100 range by “leveraging its pricing power”.

While higher non-Opec supply or lower gross domestic product are “downside risks” to prices, Goldman Sachs expects Brent to remain close to $80.

Opec+ is set to hold its next ministerial meeting on November 26 in Vienna to decide oil production policy for the first half of 2024.

The Israel-Gaza war, which last month caused oil price volatility, appears to be contained, but risks of a regional conflagration remain, MUFG said.

“The key concern remains on how the US can skilfully navigate pressure to tighten the enforceability of its sanctions on Iranian barrels without antagonising China’s growing appetite for discounted Iranian crude,” the Japanese lender said.

US President Joe Biden and Chinese President Xi Jinping met in California this week amid disputes between their countries over military and economic issues.