Julia Fanzeres 7/12/2022
(Bloomberg) — Oil posted another sharp decline as U.S. trading commenced with Covid-19 flare ups adding to concerns about a global economic slowdown.
West Texas Intermediate lost as much as 6.9% to slip under $97 a barrel as Wall Street traded lower and the dollar rose, making commodities priced in the currency more expensive. Bearish sentiment has filtered through commodities as rising virus cases in China and looming US inflation data stoke concerns about demand, outweighing fundamental market tightness.
“Crude trading under extreme pressure this morning as a defensive posture continues with consumer sentiment still in a depressed mode along with a COVID resurface in China,” said Dennis Kissler, senior vice president of trading at BOK Financial.
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 oil market tightness. Later on Tuesday, the EIA will release its Short-Term Energy Outlook.
Crude has tumbled since early June on escalating fears the US may be heading for a recession as central banks hike rates aggressively to combat inflation. Dwindling liquidity, and as speculators become more bearish on main oil benchmarks, has exacerbated price moves. Brent futures last week recording their third-largest slump ever in dollar terms.
“More of the same with commodities taking a beating across the board,” said Ole Hansen, head of commodities strategy at Saxo Bank. There are also “worries that the US CPI print on Wednesday may surprise to the upside again, just like it did last month. With that the risk of even an more aggressive growth-debilitating rate hike.”
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.