Oil Falls on Fears of a Recession, Looking to a Good Week as Supply Tightens

The Federal Reserve's caution on economic growth caused a decline in oil prices on Friday, but they were still expected to end the week higher due to encouraging signs from China and the possibility of a supply shortage in the months ahead.

West Texas Intermediate crude futures increased 0.2% to $84.67 a barrel at 21:34 ET, while London-traded Brent oil futures, the global benchmark, declined 0.3% to $92.45 a barrel (01:34 GMT). While WTI remained steady, Brent was expected to close the week roughly 0.7% higher.

On Thursday, after Philadelphia Fed President Patrick Harker stated that the central bank is actively working to slow the economy in order to battle growing inflation, crude prices plunged from intraday highs and only modestly increased in final settlement.

His remarks served as a kind of affirmation that the United States is going to have a recession because of rising interest rates, which might reduce demand for petroleum.

Crude markets have been volatile this year due to rising U.S. interest rates and persistently high inflation as traders worried about a recession in the largest economy in the world.

However, figures released this week indicated that the price of U.S. oil has been stable lately. U.S. oil stockpiles unexpectedly decreased last week, and the country's supply, especially of gasoline, remained limited.

Markets also completely ignored U.S. President Joe Biden's proposal to release around 15 million barrels of oil from the Strategic Petroleum Reserve, a storage facility for oil because the Organization of Petroleum Exporting Countries and Allies (OPEC+) will reduce output by 2 million barrels per day, thereby canceling out the resulting increase in supply.

Additionally, a number of cartel members supported the output reduction early this week, sending encouraging signals to the oil markets.

Another encouraging indicator for petroleum prices came from rumours that China was 

quarantine measures brewed optimism over improving demand in the world’s largest oil importer.

But markets remained wary towards the country, especially after President Xi Jinping said Beijing has no plans to soften its strict zero-COVID policy.

Traders are also waiting to see how the country’s economy performed in the third quarter, after the government indefinitely delayed the release of the GDP data.