Brent futures weighed down by recession fears following hawkish central bank stances

Front-month ICE Brent has declined by $0.87/bbl on the day from Friday to $79.25/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

The recent closure of the Keystone Pipeline and the heavily depleted Strategic Petroleum Reserve (SPR) have threatened the US with an oil supply crunch, causing President Joe Biden's administration to raise the price it is willing to pay to replenish its emergency reserves.

The US Department of Energy (DoE) will buy up to 3 million bbls for delivery in February next year at a price below $96/bbl, calling it a good deal for American taxpayers. Back in October, White House officials said the DoE would refill the SPR once the price of oil reached $67-72/bbl, hailing the plan a "win for taxpayers."

Market confidence has been boosted by China’s recent tone-setting annual economic meeting and reopening. As part of the annual Central Economic Work Conference, Chinese policymakers have placed economic stability at the top of their priority list, reports China’s state-run news portal CGTN.

"Despite a surge in COVID cases, the reopening optimism and accommodative policy improve oil's demand outlook," CMC Markets analyst Tina Teng tells Reuters.

“The key takeaway from the Work Conference is that the government wants growth via domestic consumption, and this will be the top priority in 2023,” says ING’s chief economist of Greater China Iris Pang.

Downward pressure:

Oil market sentiment has been dampened by a blitzkrieg of interest rate hikes, and a hawkish undertone to monetary policies by multiple central banks last week.

The US Federal Reserve (Fed), European Central Bank, Bank of England and Swiss National Bank increased their key interest rates by 50 basis points to curb inflation caused by rising food and energy prices. They signalled intent for further rate increases, despite fears of a possible recession in the US and Europe next year.

“Poor November data [in the US] on retail and industrial activity reinforce the message that recessionary forces are building,” says ING’s chief international economist James Knightley. “In an environment where the Fed is purely focused on the battle to get inflation down and is signalling another 75bp of hikes from here on, it is going to reinforce market concerns about the prospect of a recession."

“The talk around the campfire has suddenly become all about demand destruction in the face of a recession,” said Robert Yawger, director of energy futures at Mizuho ha told CNBC.

By Konica Bhatt

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