Oil in free fall weighed down by recession fears

NEWYORK | Oil prices tumbled on Tuesday as fears of a recession in crude oil-consuming countries that could crush demand outweighed worries about supply disruptions.

North Sea Brent crude, due for delivery in September, fell 9.45% to $102.77 a barrel after falling nearly 10%.

Meanwhile, US West Texas Intermediate (WTI) crude for August delivery fell 8.23% to $99.50, slipping below $100 a barrel for the first time since May 11.

“Obviously the trajectory of the oil has completely reversed,” Price Futures Group’s Phil Flynn told AFP.

“There are many concerns about a possible recession and also about the fact that China has imposed mass testing for Covid-19,” the analyst said.

China’s Health Ministry on Tuesday reported 335 new positive cases nationwide, and as the country imposes a zero-tolerance policy for the disease, authorities launched a new round of mandatory PCR testing in most districts of Shanghai.

“This raises concerns that China’s oil demand could slow,” Flynn said.

For Ipek Ozkardeskaya, analyst at Swissquote, “recession fears worsen oil demand outlook and lower prices”.

With WTI below $100 for almost two months, oil has crossed an important “psychological threshold”. The analyst raises the possibility of a price drop to the next fateful level of $85 a barrel.

In fact, in a recession scenario, Citi analysts predict oil prices would fall to $65 a barrel by the end of the year, then $45 if the Organization of the Oil Exporting Countries (OPEC+) didn’t intervene.

“Everything is happening a bit at the same time and the market is very nervous about the direction the economy is going which is causing a lot of volatility,” added Phil Flynn as Europe posted disappointing activity indicators.

In addition to the United States, “some are noting that gasoline demand has not been as resilient as expected during the July 4 Independence Day long holiday weekend,” the analyst continued.

supply in the background

The oil market is “turning away from inflation” and heading toward “economic desperation,” said Stephen Innes, an analyst at Spi Asset Management.

“PMI indices underscore the risks of a recession in the eurozone,” argued Neil Wilson, an analyst at Markets.com, for whom “a recession seems inevitable.”

Economic activity growth in the euro zone slowed sharply in the private sector in June, hitting its lowest level in 16 months, according to the final composite PMI index released by S&P Global on Tuesday.

Fears of a global recession have therefore swept over “the most obvious supply issues” which have now “gone to the background”, says Mr Innes.

“The current conflicting demand (bearish) and supply (bullish) signals of the oil equation make predicting oil prices a tedious task,” commented Tamas Varga, analyst at PVM Energy.

“It’s impossible to predict when the focus will irrevocably shift from supply to demand,” he explains.

Fears of a global recession continued to dominate industrial metals markets, particularly copper.

Copper is heavily used in industry, particularly to make electrical circuits, and is known for reflecting the health of the world economy, hence the nickname Doctor Copper.

The red metal is therefore very sensitive to a possible slowdown in global economic activity and serves as an economic barometer.

For the first time in 17 months, copper traded below $8,000 a ton, down 21% year-to-date. On Tuesday it reached $7627.00 per ton.

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