View of the Los Angeles refinery of Phillips 66 Company (foreground), which processes domestic and imported crude oil into gasoline, aviation fuels and diesel, and oil storage depots at the Kinder Morgan Carson terminal (background), at dusk in Carson, California, USA, March 11, 2022. REUTERS / Bing Guan
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- Oil records the largest daily percentage drop since March
- Shanghai China announces two new rounds of massive COVID tests
- The euro returns to 2002 levels, the dollar rises due to the demand for safe haven
- Commercial falls extended to natural gas, gasoline and heating diesel
- The Norwegian government is stopping the strike in the oil and gas sector, according to the union
NEW YORK, July 5 (Reuters) – Oil plunged about 9% on Tuesday in the biggest daily drop since March amid growing fears of a global recession and blockades in China that could reduce demand.
World benchmark Brent crude traded at $ 102.77 a barrel, losing $ 10.73, or 9.5%. US crude West Texas Intermediate (WTI) fell 8.2%, or $ 8.93, down to $ 99.50 a barrel. There was no WTI agreement on Monday due to a holiday in the United States.
Both benchmarks recorded their highest daily percentage since March 9 and affected the stock prices of major oil and gas companies.
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“We’re growing and the only way to explain that is to fear the recession,” said Robert Yawger, Mizuho’s director of energy futures. “You’re feeling the pressure.”
Oil futures sank along with natural gas, gasoline and stocks, which often serve as an indicator of crude oil demand.
Meanwhile, massive tests of COVID-19 in China stored fears of possible blockades that threaten to deepen cuts in oil consumption.
Shanghai said it would begin new rounds of mass testing of its 25 million residents over a three-day period, citing an effort to track outbreak-related infections at a karaoke bar. Read more
“We are seeing some panic settlement. A lot of nervousness,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Kissler said concern that demand for the summer driving season in the U.S. would decline after the July 4 holiday also seemed to weigh on the market.
The Dow Jones Industrial Average (.DJI) fell about 1% while the S&P 500 index (.SPX) fell less than 1%. U.S. natural gas prices fell 4.7%, diesel for heating fell about 8% and gasoline for delivery to the port of New York fell 10.5%.
If a recession hits and takes a significant bite out of energy demand, there could be more downward oscillations, said Andy Lipow, president of consulting firm Lipow Oil Associates.
“The commodity market can be pretty relentless when you go into recession and supplies outstrip demand,” Lipow said.
Meanwhile, demand for safe haven bonds from the U.S. Treasury raised the dollar by about 1.3%, which in turn weighed on oil denominated in green dollars as it becomes more expensive for buyers who have other currencies.
The euro fell to a two-decade low as data showed business growth in the eurozone slowed further last month, with prospective indicators suggesting the region could fall in decline this quarter, as that the cost of living crisis keeps consumers cautious. Read more
In South Korea, inflation peaked at nearly 24 years in June, adding to concerns about slowing economic growth and oil demand. Read more
Supply concerns still persist, initially lifting WTI and Brent early in the session, due to the planned interruption of production in Norway, where offshore workers began a strike. Read more
At the end of the session, the Norwegian government intervened to stop the strike that had cut off oil and gas production, a union leader told Reuters.
Saudi Arabia, the world’s largest oil exporter, pushed crude oil prices for Asian buyers in August to near-record levels amid scarce supply and strong demand. Read more
Meanwhile, former Russian President Dmitry Medvedev said a proposal by Japan to limit the price of Russian oil to half its current level would mean less oil on the market and could raise prices above $ 300-400 a barrel. Read more
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Additional report by Bozorgmehr Sharafedin in London, Florence Tan and Muyu Xu; Edited by Marguerita Choy and Edmund Blair
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