Crude Oil Lower; Global Demand Concerns Mount

By Peter Nurse — Oil prices weakened Friday, weighed by concerns of weakening global demand while supply tightness has been lessened by Russia’s decision to return gas to Europe as well as the resumption of some Libyan output.

By 9:20 AM ET (1320 GMT), futures traded 1% lower at $95.39 a barrel, while the contract fell 0.5% to $103.31.

U.S. were up 0.4% at $3.1612 a gallon.

Worries that aggressive monetary tightening by a series of central banks will weigh heavily on global growth, and thus the demand for oil, have hit the crude market hard over the last month.

The joined the club on Thursday, by 50 basis points, even with data released Friday showing that Eurozone business activity slumped into contraction territory in July, dragged lower by a quickening slowdown in manufacturing and near-stagnant growth in services.

Data from the U.S. Energy Information Administration, released Wednesday, showed rose 3.5 million barrels last week. This was a much sharper increase than had been expected during the peak summer driving season and has raised concerns that U.S. drivers are feeling the pinch of high prices.

At the same time, China’s COVID-19 cases hover at a two-month high, posing a challenge to the country’s strategy of aggressively restricting mobility, to the detriment of economic growth.

Turning to the supply side of the equation, Moscow’s decision to sanction the return of Russian gas flows to Europe via the Nord Stream 1 pipeline has eased the pressure on energy supplies in Europe.

“Global recession fears and the resumption of Russian gas flows to Europe seem to have been the catalyst [of recent losses],” said Jeffrey Halley, an analyst at OANDA, “although I am sure that trading volatility recently is reducing liquidity as well, exacerbating movers.”

Additionally, OPEC-member Libya has announced that it is restoring production after the lifting of force majeure on oil exports last week. Output is currently seen rising above 700,000 barrels a day, and is expected to return to 1.2 million barrels a day within a week to 10 days.

That said, there have been reports of violent clashes erupting between rival factions in Libya early Friday, pointing to severe uncertainty around the stability of the country as well as the safety of its oil infrastructure.

The and the rig count due later in the session round off the week, as usual.

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