Oil tumbled as concerns about a global economic slowdown and growing Covid-19 cases in China reduced traders’ appetite for risk.
West Texas Intermediate shed more than 8% to settle under $96 a barrel for the first time since early April. Rising virus cases in China and looming US inflation data are stoking concerns about demand. Meanwhile, dwindling liquidity is also exacerbating price moves. Money managers have become more bearish on the main oil benchmarks, cutting their net-long positions last week to the lowest since 2020.
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“The volatility in commodity markets increases the stakes for putting money to work,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “The decimation of other commodities has also reduced risk appetite for crude even in a supply-constrained market.”
Despite recession fears, several energy administrations agree that supply tightness is set to worsen. IEA’s Executive Director Fatih Birol said nations “might not have seen the worst” of a global energy crunch while OPEC’s first look at 2023 showed no relief from market tightness. Underscoring supply constraints, the US lowered its growth forecast for oil production through 2023 citing inflation and labor shortages.
Crude has fallen since early June on escalating fears the US may be pushed into a recession as central banks hike rates to combat inflation. Yet physical markets continue to show signs of strength. Premiums for North Sea oil were bid at the highest since at least 2008. The oil futures curve also remains backwardated, where near-term contracts are more expensive than those for later delivery.
- WTI for August delivery dropped $8.25 to settle at $95.84 a barrel in New York.
- Brent for September settlement fell $7.61 to settle at $99.49 a barrel.
President Joe Biden is scheduled to visit Saudi Arabia this week during a tour to the Middle East as he seeks to tame high energy prices that have roiled the global economy.
The US believes OPEC has room to raise production should Biden’s upcoming visit to the region yield any agreements. France’s President will meet with the leader of the UAE next week to discuss oil supplies.
–With assistance from Alex Longley.