Oil prices closed the week with relatively steady trading but ultimately experienced a decline due to profit-taking activities. The market also grappled with the interplay of supply concerns resulting from Russia’s fuel export ban and apprehensions regarding future rate hikes and their impact on demand.
Brent futures settled slightly lower by 3 cents, reaching $93.27 per barrel. This marked a 0.3% decline for the week, breaking a three-week streak of gains.
U.S. West Texas Intermediate crude (WTI) futures, on the other hand, increased by 40 cents or 0.5%, reaching $90.03 per barrel. However, it registered a marginal 0.03% decline for the week, marking the first weekly drop in four weeks.
Dennis Kissler, Senior Vice President of Trading at BOK Financial, pointed out that investors are anticipating a potential slack in demand as October approaches. This anticipation is attributed to refineries entering maintenance periods and the anticipation of higher interest rates that could exert further pressure on markets. Profit-taking activities also played a role in the market’s dynamics.
Over the previous three weeks, both Brent and WTI contracts had rallied by more than 10%, driven by concerns about tightening supply.
During the week, U.S. Federal Reserve officials issued warnings about the possibility of further rate hikes, even after voting to maintain the benchmark federal funds rate at its current level during a recent meeting. Fed Governor Michelle Bowman emphasized the ongoing high levels of inflation and indicated that it might be appropriate for the Federal Open Market Committee to raise rates further and maintain them at restrictive levels for an extended period. She particularly highlighted the risk of further increases in energy prices, which she is closely monitoring. Higher interest rates can increase borrowing costs, potentially slowing economic growth and reducing oil demand.
Meanwhile, Russia implemented a temporary ban on the export of gasoline and diesel to most countries, creating expectations of tightened supplies. Transneft, a Russian state-owned company, suspended diesel deliveries to key Baltic and Black Sea terminals, further contributing to this supply constraint.
The ban has introduced fresh uncertainty into an already tight global refined product supply situation, leading impacted countries to seek alternative suppliers. Russian wholesale gasoline prices experienced a nearly 10% decrease, while diesel prices dropped by 7.5% on the St. Petersburg International Mercantile Exchange.
In the United States, the number of active oil rigs, serving as an indicator of future production, fell by eight to 507 during the week, reaching their lowest level since February 2022, according to energy services firm Baker Hughes.
Additionally, U.S. refineries typically conduct maintenance activities in the autumn following a period of intensive production to meet summer driving season fuel demand. Offline refinery capacity was expected to reach 1.4 million barrels per day (bpd) during the week, in contrast to the 800,000 bpd offline capacity observed in the previous week, as reported by IIR Energy.
Money managers increased their net long positions in U.S. crude futures and options during the week ending September 19, according to the U.S. Commodity Futures Trading Commission.
