Oil markets are consumed by economic fears, OilPrice said.

Bearish sentiment has well and truly taken hold of oil markets, with fears of a global recession still the main factor in oil markets. There are plenty of bullish catalysts looming this winter and at the start of 2023, but that isn’t enough to distract markets from current conditions.

With stocks firmly in the red, house prices trending downwards, US yields hitting multi-year highs, and the threat of a global recession still looming, fears of an economic downturn certainly seem well founded. Amidst widespread expectation that next week’s Fed meeting will see another aggressive interest rate hike, sentiment in the oil market is decidedly bearish, with oil prices on track to record a third consecutive weekly decline. While there are plenty of bullish catalysts in the not-so-distant future for oil markets, none of them are immediate enough to counter current economic fears, OilPrice reports.

Brent crude oil futures slipped below $90/bbl in early September, the lowest level since January and more than $34/bbl below a June peak. This is the largest 90-day decline since March-April 2020 and is only exceeded prior to 2020 by market routs in 2014-15 and 2008-09. Yet, diesel and jet fuel markets remain exceptionally tight, as reflected in current pricing, IEA said.

For now, a deteriorating economic environment and recurring Covid lockdowns in China continue to weigh on market sentiment. Nevertheless, world oil demand is forecast to grow by 2 mb/d in 2022 and 2.1 mb/d next year. Jet fuel dominates growth, while road transport demand wanes. Robust oil use for power generation in the Middle East and in Europe due to record natural gas and electricity prices is providing additional support. At the same time, more oil is hitting the market. IEA member countries released nearly 180 mb of government stocks from March through August, with a further 52 mb scheduled for the next two months. Moreover, world oil supply increased by 790 kb/d in August to 101.3 mb/d – up more than 5 mb/d on a year ago.

/ OilPrice, IEA/