Oil headed for its biggest weekly drop since March as the possibility of higher interest rates roils financial markets, overshadowing the tight physical setup for crude that caused prices to skyrocket in the third quarter.
(Bloomberg) — Oil headed for its biggest weekly drop since March as the possibility of higher interest rates roils financial markets, overshadowing the tight physical setup for crude that caused prices to skyrocket in the third quarter.
Growing angst about further rate increases and a longer period of hawkish monetary policy has provided the backdrop for oil’s recent selloff. At the same time, technical selling and algorithmic trading have pushed the decline into a full-blown rout and driven crude’s volatility to its highest since March.
West Texas Intermediate traded around $82 a barrel, tumbling about 9% this week. The commodity is now at the lowest since August, having erased the gains from the extension of production cuts by Saudi Arabia and Russia. Prices had rallied more than 30% amid the monthslong OPEC+ campaign to reduce supplies.
Oil lost ground this week after US government figures showed declining gasoline consumption and increasing inventories of the motor fuel. The report 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.”
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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