October 7, 2022

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Oil collapses due to the problems of inflation and Iraq's exports

Oil collapses due to the problems of inflation and Iraq’s exports

A picture of the emblem of the Organization of the Petroleum Exporting Countries (OPEC) at its headquarters in Vienna, Austria, March 21, 2016. REUTERS/Leonard Voiger

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LONDON (Reuters) – Oil prices fell on Tuesday amid concerns that the weakness of global economies caused by inflation will reduce demand for fuel, and with Iraqi crude exports unaffected by the clashes.

Brent crude futures for October settlement fell $2.45, or 2.33%, to $102.64 a barrel by 1022 GMT, after rising 4.1% on Monday, the biggest increase in more than a month.

The October contract expires on Wednesday and the most active contract for November was at $101.12 a barrel, down 1.76%.

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US West Texas Intermediate crude was at $95.46 a barrel, down $1.55, or 1.6%, following a 4.2% rise in the previous session.

Inflation is approaching double-digit territory in many of the world’s largest economies, a level not seen in nearly half a century. This could prompt central banks in the United States and Europe to resort to more sharp interest rate increases that could limit economic growth and affect fuel demand. Read more

“The economy will continue to remain sluggish with aggressive monetary policies by the Federal Reserve. Investors are now waiting for the monthly employment data on Friday,” said Kunal Sawhney, CEO of Calkin Group.

Prices fell after comments from the state-owned Iraqi oil marketing company SOMO that Iraq’s oil exports were not affected by the unrest, Giovanni Stonovo, an analyst at UPS, said. Read more

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Baghdad witnesses the worst fighting in years as clashes between Shiite groups continue for a second day. Read more

Sumo also said on Tuesday it could redirect more oil to Europe if needed. Read more

The market awaits the next meeting of the Organization of the Petroleum Exporting Countries and allies like Russia, better known as OPEC+, on September 5th.

Saudi Arabia last week raised the possibility of OPEC+ production cuts, which sources said could coincide with an increase in supplies from Iran if it strikes a nuclear deal with the West.

“The potential reduction in OPEC + production is the reason why the oil market is heading towards weak stocks and a strong dollar,” said Tamas Varga of BVM oil brokerage.

Meanwhile, the American Petroleum Institute, an industry group, is due to release data on US crude stocks at 4:30 PM ET (2030 GMT) on Tuesday.

A preliminary Reuters poll showed on Monday that crude oil inventories in the United States are likely to fall by 600,000 barrels in the week ending August 26, as distillate and gasoline stocks fell.

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(Additional reporting by Rowena Edwards, Moyo Chu in Singapore.) Editing by Christian Schmolinger and Louise Heavens

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