Oil rose along with equities on Friday, but still declined for a third straight week on growing concerns over global demand and the unwinding of the Israel-Hamas war’s risk premium.

West Texas Intermediate climbed steadily through most of Friday’s session to settle above US$77 a barrel, up 1.9 per cent. Broader financial markets bounced back from U.S. Federal Reserve Chair Jerome Powell’s comments that officials won’t hesitate to tighten policy more. Traders also passed over a soft reading on U.S. consumer sentiment showing that long-term inflation expectations reached a 12-year high. Still, concerns about waning demand and higher supply are driving a longer-term retreat in crude prices.

“The futures market appears oversold,” Royal Bank of Canada analysts including Michael Tran wrote in a note. “While there may be some short-term, asymmetric upside for crude prices, mounting concerns of slowing demand could be enough to ease the enthusiasm for a significant relief rally over the coming weeks.”

WTI has plunged around 13 per cent in the past three weeks — including a 4.2 per cent drop this week — on bearish consumption signals from China, the U.S. and Europe. Meanwhile, flows from the Middle East remain unaffected by the Israel-Hamas war despite mounting concerns of a potential two-front conflict as Hezbollah, a Lebanon-based Islamist group, intensifies its offensive.

The slump marks a sharp reversal from late September, when the Organization of Petroleum Exporting Countries projected an unprecedented decline in inventories amid record fuel demand and Saudi supply cuts. Attention has now shifted to a refining downturn in China and stubbornly high interest rates in the U.S.

Diesel — a key fuel powering the economy — is becoming the latest drag on oil, with U.S. futures slumping about 6.2 per cent this week. That echoes softness in Europe, where declines in industrial and economic activity in Germany, France and Spain have driven a sharper retreat in fuel consumption.

The rapidly souring sentiment caused WTI’s prompt spread to flip to a bearish contango structure at certain points on Thursday and Friday, the first time that has happened since July. In contango, near-term prices are below longer-dates ones. The turnaround comes as American production rises to a record and stockpiles at the nation’s top storage hub rise off critically low levels.

Prices:

• WTI for December delivery climbed 1.9 per cent to settle at $77.17 a barrel in New York.
• Brent for January settlement rose 1.8 per cent to settle at $81.43 a barrel.