Oil headed for its biggest weekly drop since March as worries about the global economy clouded the demand outlook, with commodities rocked by gains in the US dollar and a surge in bond yields.
(Bloomberg) — Oil headed for its biggest weekly drop since March as worries about the global economy clouded the demand outlook, with commodities rocked by gains in the US dollar and a surge in bond yields.
West Texas Intermediate fluctuated around $82 a barrel after closing Thursday at the lowest level since late August. The US crude benchmark has tumbled more than 9% this week, with deep losses Wednesday and Thursday. The combination of technical trading and a spiraling options market has been a key factor in the drop.
Prices initially extended their decline on Friday as US employment data beat expectations, lifting the dollar and making commodities priced in the US currency less attractive. The data bolstered the case for interest rates staying high. Prices recovered shortly afterward.
Oil lost ground this week following a poor print for US gasoline consumption, coupled with an increase in inventories of the motor fuel. That’s ignited a debate about whether an earlier run-up in prices was destroying product demand, though banks such as Goldman Sachs Group Inc. and Barclays Plc say the concerns are overdone.
“The recent correction in oil prices has been too rapid and was largely unwarranted in our view,” Barclays analyst Amarpreet Singh said. “The narrative of price-driven demand destruction does not stand in the face of the fact that very little of the recent run-up in oil prices has been passed on to the consumers.”
Concerns about global growth are roiling commodities more broadly, with copper on track for a hefty weekly drop and trading near the lowest level this year. Gold also is on track for a second straight week of losses.
The scale of oil’s turnaround has been rapid. Brent and WTI have slumped toward oversold territory on a Relative Strength Index basis just a week after being overbought. The benchmarks also have rapidly tumbled beneath their lower Bollinger Bands, another sign the slump may be overdone.
Still, sliding margins for refined products cloud the outlook. At one point this week, gasoline was trading less than $8 above crude, halving from two weeks prior. Diesel’s premium over crude also fell to the lowest since July, in part as Russia lifted an export ban for its oil producers.
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