Oil prices plunge on bond sell-off, demand concerns

October 06, 2023 (MLN): Oil prices continued their downward trend for the third consecutive session on Friday due to a sell-off in the U.S. bond market, coupled with an uncertain demand outlook.

Brent crude is currently trading at $83.58 per barrel, down by 0.20% on the day.

While West Texas Intermediate crude (WTI) is trading at $81.38 per barrel, down by 0.20% on the day.

Oil prices are on track for their biggest weekly decline since March 2023, with both Brent Crude and WTI down by 9.83% and 10.3% WoW amid rising U.S. bond yields.

Bond investors' rising concerns around government spending and a ballooning budget deficit in the United States, the world's top oil consumer, are contributing to a steep sell-off that has pushed Treasury prices to 17-year lows, As Reuters reported.

"Oil prices are stabilizing after a brutal week that saw a relentless bond market selloff trigger global growth worries," said Edward Moya, an analyst at OANDA.

"The worst week for crude since March is starting to attract buyers given the oil market will still remain tight over the short-term," Moya said.

JPMorgan said in a note it expected oil demand growth to be healthy but slower in the last quarter of 2023, while the National Australia Bank said it saw the recent dip in prices as temporary and forecast a deficit market this quarter.

"We think that once markets start paying attention to falling global oil stockpiles, Brent oil futures will likely creep back up above $US90/bbl," the Commonwealth Bank of Australia said in a note on Friday.

U.S. government data this week showed a sharp decline in U.S. gasoline demand, with economic data showing the U.S. services sector had slowed.

A key survey revealed that eurozone economy probably shrank last quarter, while a pricey dollar kept a lid on the buying capacity of countries around the world.

All eyes on Friday will be on the U.S. monthly jobs report for signs of how strong the economy is.

"The non-farm payroll data tonight, the US CPI, and China's economic data next week will be key to steering oil's movements. A resilient economic front can be a short-term positive sign for the demand outlook," said Tina Teng, an analyst at CMC Markets.

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