Oil prices collapsed on recession fears, with WTI closing below the symbolic level of 100 dollars for the first time in two months. Brent crude for September delivery fell 9.45% to $102.77 a barrel in London. Meanwhile, the West Texas Intermediate (WTI) for August lost 8.23% to 99.50 dollars, a minimum since May 11 in New York.
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“Obviously the trajectory of oil has reversed,” said Phil Flynn, of Price Futures Group, in dialogue with AFP, after the strong rise in black gold since the start of the war in Ukraine in February. “There is a lot of concern about an eventual recession and about the fact that China has imposed mass covid tests,” he added.
The Chinese Ministry of Health reported 335 new positive cases of coronavirus in the country on Tuesday, and the authorities launched a new series of mandatory tests in most districts of Shanghai. “That raises concerns that China’s oil demand could weaken,” Flynn said.
For Ipek Ozkardeskaya, Swissquote analyst, “recession fears dampen prospects for oil demand and push prices down”. Returning below $100, crude falls below an important “psychological high”. The analyst evokes the possibility of a drop in prices to 85 dollars per barrel.
In a recessionary scenario, Citi analysts even expect a barrel to drop to $65 by the end of the year, and then to $45 if OPEC doesn’t intervene. “Everything is happening at the same time and the market is very nervous about the direction the economy is going, and that causes a lot of volatility,” added Phil Flynn, after disappointing activity indicators in Europe. On the other hand, in the United States, “some note that gasoline demand was not as strong as anticipated during the Fourth of July weekend,” he added.
The oil market “deviates from inflation” and heads towards “economic hopelessness”, said Stephen Innes, an analyst at Spi Asset Management. Some activity indices highlighted “the risk of recession in the euro zone,” said Neil Wilson, an analyst at Markets.com, for whom “recession seems inevitable.”
The growth of economic activity in the euro zone slowed in June in the private sector, according to the PMI index published on Tuesday by S&P Global. Fears of a global recession then became more important than “the most obvious supply problems”, which were “relegated to the background”, Innes said. In this context, “it is impossible to predict when attention will inevitably shift from supply to demand,” explained Tamas Varga, an analyst at PVM Energy.
Recession fears also continued to prevail in industrial metals markets, in particular for copper, known for reflecting the health of the world economy to the point that it is known as “Dr Copper” (doctor copper). The red metal is highly sensitive to a potential global economic slowdown. For the first time in 17 months, copper traded below $8,000 a tonne, a 21% drop since the start of the year. On Tuesday it reached $7,627.00 per ton.
AFP