Rising coronavirus cases in China and looming inflation data in the United States are fueling concerns about crude demand.
Oil fell as worries about a global economic slowdown and rising Covid-19 cases in China reduced traders’ appetite for risk.
West Texas Intermediate fell more than 8% to settle below $96 a barrel for the first time since early April. Rising virus cases in China and looming US inflation data are fueling demand concerns. Meanwhile, the decrease in liquidity also exacerbates price movements. Fund managers turned more bearish on major oil benchmarks, cutting their net long positions last week to the lowest since 2020.
“Volatility in commodity markets raises the stakes for making money work,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “The decimation of other commodities has also reduced the risk appetite for crude, even in a tight supply market.”
Despite fears of recession, several energy administrations agree that supply tensions will worsen. IEA executive director Fatih Birol said countries “might not have seen the worst” of a global energy crisis, while OPEC’s first look at 2023 showed no no relief from market stress. Highlighting supply constraints, the United States lowered its forecast for oil production growth through 2023 citing inflation and labor shortages.
Crude has fallen since early June on growing fears that the United States could be pushed into a recession as central banks raise rates to fight inflation. Yet physical markets continue to show signs of strength. Premiums for North Sea oil have been the highest since at least 2008. The oil futures curve also remains retrograde, where short-term contracts are more expensive than those for later delivery.
- WTI for August delivery fell $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 due to visit Saudi Arabia this week on a tour of the Middle East as he seeks to rein in high energy prices that have rocked the global economy.
The United States believes OPEC has a chance to increase production if Biden’s upcoming visit to the region results in deals. The French president will meet the leader of the United Arab Emirates next week to discuss oil supplies.
–With the help of Alex Longley.