Oil set for 10% weekly drop as demand worries dominate

Brent crude futures were at $76.20 a barrel, up 5 cent, at 1216 GMT. Brent hit a 2022 low this week.

U.S. West Texas Intermediate crude was up 42 cents at $71.88 a barrel.

The contracts are set for weekly losses of around 10% each, their worst weekly drops in percentage terms since August and April, respectively.

“The EU’s oil embargo against Russia and the G7 price cap on Russian oil that came into force at the start of this week have been just as powerless to prevent this as the easing of coronavirus restrictions in China and robust Chinese crude oil imports have,” Commerzbank analyst Carsten Fritsch said.

The market structure for Brent contracts has switched to contango, meaning contracts for near-term delivery are cheaper than for delivery in six months, indicating that traders see weaker demand.

News of a leak closing Canadian firm TC Energy’s Keystone pipeline in the United States prompted a brief rally on Thursday. However, prices finally eased as the market took a view that the closure would be brief.

The market similarly shrugged off a queue of oil tankers being held up by Turkish authorities on their way to the Mediterranean from the Black Sea.

In China, surging infections will likely depress economic growth in the next few months despite some restrictions being eased, bringing a rebound only later in 2023, economists said.

Also on the downside, the U.S. economy is heading into a short and shallow recession over the coming year, according to economists polled by Reuters who unanimously expected the U.S. Federal Reserve to go for a smaller 50 basis point (bps) interest rate hike on Dec. 14.

The European Central Bank will also likely lift its deposit rate by 50 bps next week to 2.00%, another Reuters poll found, despite the euro zone economy almost certainly being in recession, as it battles inflation running at five times its target.