Oil set for weekly loss as demand woes outweigh tight supply

London — Oil slipped in volatile trade on Friday and was heading for a weekly decline as concern over a potential recession-driven demand downturn outweighed tight global supplies.

Central banks are raising interest rates to tame inflation, spurring the fear that rising borrowing costs could stifle growth, while mass Covid-19 testing in Shanghai this week stoked the fear of potential lockdowns that could also hit oil demand.

Brent crude fell 36c, or 0.3%, to $104.29 a barrel by 8.20am GMT and US West Texas Intermediate crude dropped 50c, or 0.5%, to $102.23.

Both benchmarks were set to register weekly declines — Brent’s fourth in succession and WTI retreating after a gain the previous week. Prices had tumbled on Tuesday, when Brent’s $10.73 drop was the contract’s third-biggest fall since it started trading in 1988.

“With more rate hikes to come and the US likely in a technical recession, topside market ambitions could be quite limited,” Stephen Innes, MD at SPI Asset Management, said.

In focus on Friday will be the latest US jobs data, which is expected to show that nonfarm payrolls increased by 268,000 in June.

However, oil prices have soared over the first half of the year. Brent crude came close to the record high of $147 after Russia launched its invasion of Ukraine in February, adding to supply concerns that some analysts expect to worsen.

“Economic worries may have roiled oil prices this week, but the market is still flashing bullish signals. This is because supply tightness is more likely to intensify from this point than to ease,” said Stephen Brennock of oil broker PVM.

Western bans on Russian oil exports have kept prices supported and sparked a rerouting of flows while oil cartel Opec and its allies are struggling to deliver on pledged production increases. 

Reuters