Crude softer early Thu but downward pressure abated for time being - Sept. 29, 2022

  • Crude futures were marginally lower early Thursday in Asia as two consecutive days of strong gains prompted some profit-taking.
  • However, the downward pressure from global economic fears that had been snowballing over recent days and had pushed Brent and WTI to successive eight-month lows last Friday and Monday this week appears to have found a counter from fresh supply concerns.
  • News reports on Tuesday that Russia was planning to propose a 1 million b/d cut in OPEC/non-OPEC production at the ministerial meeting next Wednesday triggered a pivot in oil market sentiment. That, in turn, re-focused attention on some of the other supply-related issues that had been overshadowed by demand worries in recent weeks.



Demand worries weigh on crude as supply risks stay in blind spot - Sept. 16, 2022

Global economic and oil demand slowdown worries are firmly in the driver’s seat for the crude complex. 

Intraday price fluctuations aside, Brent futures have flitted about in a relatively narrow band of $90-95/barrel for most of the past fortnight, with WTI hovering about $6 below.

But it feels like an uneasy equilibrium. The biggest challenge for the oil complex is dealing with two major variables on the demand front – assessing the magnitude of the global economic slowdown and its potential impact on oil consumption.

The World Bank this week said central banks risked sending the global economy into a “devastating” recession next year with their synchronous and hefty rate increases. An IMF spokesman said some countries would likely be in recession in 2023, but perhaps not the world. The Fund’s Managing Director Kristalina Georgieva said whether or not there is a recession in Europe, it will certainly feel like one this winter.

We see phrases like oil “demand destruction” and “demand erosion” floating around – but what is actually happening to consumption? To be sure, no one is predicting a contraction in global oil demand – not in 2023 and certainly not this year. It is still expected to grow annually, albeit at a slower pace than predicted before the Ukraine war.

That means the mounting and structural global oil supply risks – aside from those arising from the Western sanctions against Russia – while off the radar for the time being, could return to haunt the markets in 2023. They are not going to be banished by a commensurate contraction in demand!