Rising coronavirus cases in China and approaching US inflation data are fueling concerns about crude oil demand.
By Julia FanzeresBloomberg
Published July 12, 2022 July 12, 2022
Oil fell as concerns about a global economic slowdown and the growth of Covid-19 cases in China reduced traders ’risk appetite.
West Texas Intermediate lost more than 8% to settle below $ 96 a barrel for the first time since early April. Rising virus cases in China and approaching inflation data in the United States fuel concern about demand. Meanwhile, declining liquidity is also exacerbating price movements. Money managers have become more bearish in major oil benchmarks, reducing their long net positions last week to a minimum since 2020.
“The volatility of commodity markets increases the stakes to put money to work,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “The destruction of other raw materials has also reduced the appetite for crude oil risk even in a market limited by supply.”
Despite fears of recession, several energy administrations agree that the tightness of supply will worsen. IEA Executive Director Fatih Birol said nations “might not have seen the worst” of a global energy crisis, while OPEC’s first look at 2023 showed no relief from the market narrowing. Underlining supply constraints, the U.S. cut its forecast for oil production growth to 2023 citing inflation and labor shortages.
Crude oil has fallen since early June due to growing fears that the United States could be pushed into a recession as central banks raise rates to fight inflation. However, physical markets continue to show signs of strength. North Sea oil premiums have been bidding at least since 2008. The oil futures curve is also lagging behind, where short-term contracts are more expensive than post-delivery contracts.
Prices
- The WTI for delivery in August dropped $ 8.25 to settle at $ 95.84 a barrel in New York.
- Brent for the September liquidation fell $ 7.61 to $ 99.49 a barrel.
President Joe Biden is scheduled to visit Saudi Arabia this week during a tour of the Middle East as he seeks to control the high energy prices that have affected the global economy.
The United States believes OPEC has room to increase production if Biden’s next visit to the region produces any agreement. The French president will meet with the leader of the United Arab Emirates next week to talk about the oil supply.
–With the assistance of Alex Longley.