Oil records biggest weekly percentage drops in a month
Oil rose 2.5% on Friday after a spike in Saudi oil production was not expected and investors questioned whether OPEC had room to significantly increase crude output.
US President Joe Biden's request for an increase in production during his visit to the Middle East came at a time when reserve capacities of Organization of Petroleum Exporting Countries (OPEC) members were dwindling.
Anyone who examines the situation sees that there is not much capacity left.
Brent crude futures rose $2.06, or 2.1%, to settle at $101.16 per barrel, while West Texas Intermediate (WTI) crude rose $1.81, or 1.9%, to $97.59 per barrel.
Both benchmarks saw the largest weekly percentage drops in about a month, largely due to fears that the impending recession early next week will stifle demand. Brent lost 5.5% in its third weekly decline, while WTI fell 6.9% in its second weekly decline.
Driven by energy and security interests, Biden arrived in Jeddah on Friday and was expected to call on Saudi Arabia to pump more oil.
However, since the US does not expect Saudi Arabia to increase its oil production immediately, it is waiting for the outcome of the next OPEC+ meeting, which will take place on 3 August. Because, after the meeting, we are likely to see production increases from both Saudi Arabia and the United Arab Emirates.
By the way, the US may continue to make a commitment that OPEC will increase production in the coming months, in the hope that it will give the market a signal that supply is coming if needed.
U.S. oil rig counts, an early indicator of future production, rose by two this week to 599, the highest level since March 2020, according to Baker Hughes.
Signaling more oil supplies on the horizon, the Libyan oil chief said that crude oil production will resume after meeting with groups that have blockaded the country's oil facilities for months. Removing force majeure in production could mean 850,000 barrels per day.
On the economic front, the US Federal Reserve's hawkish policymakers on Thursday indicated that they favored a 75 basis point increase at this month's policy meeting, not a larger increase after Wednesday's report showed inflation accelerating.
Concerns that the Fed may choose a full 100 basis point rate hike this month and weak economic data have led Brent and WTI to drop more than $5 on Thursday below their closing price on February 23, a day before Russia's invasion of Ukraine. Both contracts recovered almost all losses at the end of the session.
Analysts expect concerns over the global economy to continue to weigh on oil. Brent has dropped significantly below $100 a barrel this week. Considering that recession fears probably won't subside for now, it's likely to continue falling.
This bear market sentiment is also one reason for renewed COVID-19 outbreaks in China hampering demand recovery.
China's refinery output in June shrank nearly 10% year-on-year, with output for the first half of the year down 6% in the first annual decline for the period since at least 2011, data showed on Friday.
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