Oil prices rose more than 5% on Friday due to the uncertainty about the US Federal Reserve’s future rate hikes, while the EU’s upcoming ban on Russian oil and the possibility of China easing some of the COVID restrictions bolstered the markets.
Though fears of global recession capped gains, Brent crude futures settled up $3.99 to $98.57 per barrel, a weekly gain of 2.9%.
West Texas Intermediate (WTI) crude futures were up $2.96, or 5%, to settle at $92.61, gaining 4.7% weekly.
China is adhering to strict COVID-19 restrictions after cases rose to the highest level since August on Thursday, but a former official said significant changes might be coming soon in the country’s COVID-19 policy.
Chinese stock markets have been buoyed this week with rumors that strict lockdowns will end, although no official announcement has been made.
However, signals about the extent of U.S. rate hikes have caused oil to lower its gains somewhat.
The U.S. Department of Labor’s nonfarm payrolls report on Friday showed the unemployment rate rose to 3.7% last month from 3.5% in September, pointing to some easing in labor market conditions that could allow the Fed to shift to smaller rate hikes.
Richmond Federal Reserve Chairman Thomas Barkin said future U.S. rate hikes are poised to act on target, and rates could continue to rise to a higher-than-expected peak for longer.
Demand concerns weigh on the market. Supply is expected to remain limited due to Europe’s planned embargoes on Russian oil, which will come into effect from December 5, and the decline in US crude stockpiles.
The slight weakness in the dollar and the upcoming Russian oil sales ban are certainly supportive for oil markets as the focus shifts from recession fears to supply issues.
But the main catalyst are the evident signs that China may ease its zero-Covid restrictions, which will boost its economy and oil demand.
On the bear market side, fears of a recession in the United States, the world’s largest oil consumer, rose after Fed Chairman Jerome Powell said on Thursday it was “too soon” to consider stopping rate hikes. Dreams of more rate hikes dampened hopes for demand recovery.
The Bank of England warned on Thursday that it thinks the UK is in recession and the economy may not grow for another two years.
Underscoring demand concerns, Saudi Arabia cut the official December selling prices (OSP) of its flagship to Asia Arab Light crude by 40 cents to $5.45 a barrel, compared to the Oman/Dubai average.
Big question marks continue on the Russian oil price border of the G7. The G7 say that it will coordinate assistance to rebuild Ukraine’s energy sector. U.S. oil refineries will continue to operate at top speeds in the fourth quarter. Italy expands Adriatic drilling rights to increase gas production and lower price.
Looking ahead, investors are looking to the US Energy Information Administration’s short-term energy outlook and the November US Consumer Price Index for insight into the pace of inflation.
