Oil Resumes Climb Despite Concerns Over Weaker Demand

By David Ho

Oil prices saw an increase on Friday morning in Asia, bouncing back after a slight decline caused by concerns regarding China’s impact on growth and demand forecasts.

Brent crude rose by 1.38%, reaching $108.93, while West Texas Intermediate (WTI) gained 1.23%, climbing to $107.44 at 10:20 PM ET (2:20 AM GMT).

Despite these gains, both benchmark contracts are expected to finish the week lower, with Brent likely to drop more than 3% and WTI expected to decline over 2%.

The oil market is currently grappling with the tension between potential supply restrictions from a European Union ban on Russian oil and demand apprehensions stemming from slower global growth, inflationary pressures, and China’s COVID-19 restrictions.

"The factors raising demand concerns have intensified significantly," stated Vivek Dhar, a commodities analyst at Commonwealth Bank.

Inflation and aggressive interest rate hikes have propelled the dollar to 20-year highs, which has limited the gains in oil prices. A stronger dollar makes oil more expensive for purchasers using other currencies.

Nevertheless, analysts remain focused on the potential European Union ban on Russian oil. This week, Russia imposed sanctions on European subsidiaries of its state-owned energy giant, and Ukraine halted a significant gas transit route.

"Oil is receiving support from supply worries as Russia moves to further leverage energy as a weapon," explained Stephen Innes, managing partner at SPI Asset Management.

A report from the International Energy Agency released on Thursday underscored the conflicting dynamics at play in the market. It indicated that increasing oil production from the Middle East and the United States, combined with a slowdown in demand growth, is expected to mitigate an acute supply shortage amidst escalating disruptions to Russian supplies.

The agency anticipates that Russia’s oil production could decline by nearly 3 million barrels per day from July levels, representing a drop about three times larger than the current displacement. Further sanctions linked to its invasion of Ukraine could exacerbate the situation if they are expanded or if additional purchasing hurdles arise.