Oil extends slide amid economic jitters

By William Watts

Oil futures fell Wednesday, extending the previous session’s sharp decline amid worries rise about the global economic outlook as central banks move to squelch inflation.

Oil is heading for a third monthly drop, despite the Ukraine war, with slower economic growth expected in Europe, China and the U.S. as economies recover from the disruptions caused by the coronavirus pandemic and central banks raise interest rates to combat inflation.

Price action

Market drivers

Oil dived on Tuesday after a Russian news report said the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, weren’t discussing production cuts. Saudi Arabia’s energy minister last week had raised the possibility of reductions. OPEC+ meets on Sept. 5.

Meanwhile, the OPEC+ Joint Technical Committee on Wednesday said it sees the oil-market surplus rising by 100,000 barrels a day from its previous estimate to 900,000 barrels a day, Reuters reported. The committee advises OPEC+ on market fundamentals.

“All of yesterday’s news flow was digested as bearish for oil as the threat of OPEC+ cuts were reduced, demand estimates in Europe were adjusted lower on poor data while ‘hot’ data in the U.S. added to already hawkish money flows that bolstered the dollar and further pressured oil,” wrote analysts at Sevens Report Research, in a note.

U.S. stock index futures were attempting to stabilize after falling for a third straight day Tuesday, rattled by Friday’s speech by Federal Reserve Chair Jerome Powell warning that economic pain may lie ahead as the central bank continues to tighten monetary policy in its effort to get inflation under control.

The Sevens Report analysts said they maintained a “neutral view” on WTI, with support at $87 a barrel and resistance between $97 and $100 a barrel “as the outlook for OPEC+ policy has become less certain while global central banks remain committed to getting inflation under control even if it means choking off growth and crippling demand.”

On the supply front, the American Petroleum Institute late Tuesday said U.S. crude inventories rose by 600,000 barrels last week, according to sources, while gasoline inventories fell 3.4 million barrels and distillate stocks dropped 1.7 million barrels.

The Energy Information Administration will release official inventory data Wednesday morning. Analysts surveyed by S&P Global Commodity Insights expect crude inventories to show a 1.9 million barrel decline, while gasoline stocks are expected to fall 1.3 million barrels and distillates are forecast to drop 1.2 million barrels.

-William Watts

(END) Dow Jones Newswires

08-31-22 0742ET

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