Oil recorded its biggest weekly gain in a month, after a volatile week marked by China loosening its COVID-19 restrictions and speculation about OPEC+ output policy.
Front-month volatility spiked to 53 percent earlier this week, the highest it has been since September, with crude trading in a US$10 range.
West Texas Intermediate (WTI) for December delivery dropped 1.53 percent to US$79.98 a barrel on Friday, but rose 4.85 percent from a week earlier.
Photo: Bloomberg
Brent crude for December delivery declined 1.51 percent to US$85.57 a barrel, posting a 2.32 weekly gain.
Speculation of OPEC+ output cuts sent crude swinging as traders tried to foretell what the cartel might decide over the weekend, while prices got a boost as China, facing extraordinary unrest, began to ease COVID-19 policies, aiding the outlook for energy consumption.
The gyrations have become too much for many traders to stomach. Open interest for WTI stands at its lowest since 2014.
Analysts expect the liquidity crisis to continue as positions continue to be closed out before year end.
Oil staged a sharp rebound this week after hitting its lowest level since last year on Monday, with demand prospects improving due to the scaling back of China’s “zero COVID” policy following protests.
The rally was aided by broader market sentiment reacting optimistically to signals from US Federal Reserve officials early in the week that the pace of interest rate hikes would slow.
However, the four-day rally on Friday came to a halt after bearish headwinds reasserted themselves into the market.
Faster-than-expected US employment growth figures reignited fears that the Fed would tighten further to slow down growth, while the EU agreed to a US$60 a barrel price cap on Russian oil.
The move is intended to allow Russian oil to keep flowing to global markets while limiting financial gains for Russian President Vladimir Putin.
Biden administration officials are trying to reassure oil market participants that the price cap will not trigger supply disruptions and price volatility after it kicks in tomorrow.
Those who watch the issue carefully have raised the risk of “over-compliance,” in which companies not prohibited by law from working in a given area nevertheless exit entirely because of concerns about contravening US policies, or for other reasons such as reputation risks.
A senior Treasury official acknowledged the unprecedented nature of the price cap during a call with reporters on Friday, but said that the US has tried to counter that by engaging extensively with industry players ahead of the implementation.
The countries in the price cap coalition have tried to make the policy as easy as possible to follow, the official said, speaking on condition of anonymity due to the sensitive nature of the talks.
Additional reporting by staff writer
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