Oil futures end higher, but post sharp weekly decline as the market stares out at a ‘darkening global demand outlook’

Price action

• West Texas Intermediate crude for November delivery
  CL00,
  -0.36%

  CL.1,
  -0.36%

  CLX23,
  -0.36%
  edged up by 48 cents, or 0.6%, to settle at $82.79 a barrel on the New York Mercantile Exchange, for a weekly decline of 8.8%, according to Dow Jones Market Data.

• December Brent crude
  BRN00,
  -0.27%

  BRNZ23,
  -0.27%,
  the global benchmark, added 51 cents, or 0.6%, at $84.58 a barrel on ICE Futures Europe, leaving it down 8.3% for the week.

• November gasoline
  RBX23,
  -0.65%
  rose nearly 0.2% to $2.19 a gallon, trimming its weekly loss to 8.6%, while November heating oil
  HOX23,
  +0.12%
  gained 1.1% to $2.90 a gallon, leaving it off 12.1% for the week.

• November natural gas
  NGX23,
  +0.41%
  added 5.4% at $3.34 per million British thermal units, for a weekly rise of 14%.

Market drivers

“Oil’s sharp retreat this week has put oil bulls on the backfoot, placing those recent calls for $100 oil further away from reach,” said Han Tan, chief market analyst at Exinity Group.

“Oil benchmarks have been forced to unwind all of last month’s gains as markets stare out into a darkening global demand outlook, fretting over the fallout from higher-for-longer rates,” especially in light of Friday’s higher-than-expected headline non-farm payrolls number, he told MarketWatch.

The U.S. gained a bigger-than-expected 336,000 new jobs in September and the government data showed an upward revision to hiring in August and July. The stronger-than-expected numbers reveal strength in the U.S. economy, but could also complicate the Fed’s decision on when to stop raising interest rates.

Against that backdrop, the U.S. dollar strengthened, with the ICE U.S. Dollar index
DXY
traded as high as 106.97, but pulled back to 106.05, down 0.2% in Friday dealings. The yield on the 10-year Treasury
BX:TMUBMUSD10Y
climbed to 7.1 basis points to 4.78%.

“Oil’s downside was exposed by the surge in the dollar and yields, while the recent pullback in U.S. gasoline consumption also eroded bullish sentiment surrounding the commodity,” said Tan.

Read: Demand destruction sinks oil prices as gasoline inventories send warning signal

Although demand-side fears have assumed control over oil benchmarks so far this month, oil prices may yet recover if “attentions are allowed to shift back on the expected market deficit,” Tan said. “A sustained Chinese economic recovery, perhaps coupled with further OPEC+ output cuts, may well help oil prices unwind recent declines and potentially revive forecasts for $100 oil.”

Crude had rallied over the summer and into fall on fears of a growing supply deficit, exacerbated by Saudi Arabia’s implementation of a production cut of 1 million barrels a day in July, which was recently extended through year-end. Russia has also moved to cut exports by 300,000 barrels a day over the same stretch.

However, oil has pulled back hard after WTI last week briefly topped $95 a barrel for the first time since August 2022 and Brent moved within a few dollars of the $100 threshold.

The reversal came after the U.S. Energy Information Administration on Wednesday reported that average gasoline demand over the last four weeks fell 5% from the same period last year.

Meanwhile, news reports said Russia’s government on Friday moved to lift a ban on most diesel exports that had been put in place last month, while a ban on gasoline exports remained in place.