Oil futures selling pressure resumed in midmorning New York trading July 6, with front-month ICE Brent falling below $100/b intraday for the first time since April 25.
At 1755 GMT, NYMEX August WTI was down $3.49 at $96.01/b, while ICE September Brent fell $3.32 to $99.45/b.
Selling pressure was the result of broad but unspecified recession fears, analysts said, as traders juggled positions ahead of the release of the June 14-15 Federal Open Market Committee meeting minutes that could offer insight into the forward monetary policy outlook of the US Federal Reserve.
“There is no doubt the oil market is sensing some demand destruction at recently elevated price levels,” Price Futures Group analyst Phil Flynn said in a note. “Part of what’s going on with the oil price crash is concern that the Fed will be too aggressive in raising rates, thereby killing oil demand and pushing the economy into a recession.”
Although the June ISM services index declined 0.6 percentage point from May, exceeding market expectations of a nearly two-point decline, it still indicated the rate of growth in the US service sector at a two-year low. Meanwhile, US Labor Department data showed job openings, beating market expectations, but employment figures still reflected a decline of almost half a million in May, falling to 11.25 million from 11.68 million in April.
NYMEX August RBOB was down 9.84 cents at $3.2306/gal, while August ULSD traded 18.65 cents lower at $3.4151/gal.
The overseas demand outlook has also come under increased pressure amid a fresh round of pandemic-induced lockdowns in China. Authorities imposed a seven-day lockdown in Xi’an from July 6. The latest round of measures follows curbs enacted July 2 in several eastern cities like Wuxi, a manufacturing hub in Jiangsu province, and Si County in Anhui province, after the emergence of fresh clusters.
“Chinese authorities will try, initially, a district-by-district approach to restrictions. But nobody should be under any illusion that they won’t go harder and faster if needed,” Jeffrey Halley, OANDA’s senior market analyst, said in a July 6 note, adding that China’s zero-COVID strategy remains a key risk factor.
In Europe, the Euro fell to a 20-year low against the US dollar July 5 on the back of rising oil and gas prices and concerns that Russia could cut off supplies completely, market analysts said.
“Beyond the market’s worries about slower global growth in recent months, what is unfolding in Europe in recent weeks is a new big negative economic shock,” said SPI Asset Management Managing Partner, Stephen Innes, in a July 6 note, adding that a recession in Europe could “send a recessionary tsunami around the world”.
Market analysts observed that investors will take the opportunity to liquidate their positions even if there is no clear supply and demand catalyst in the oil complex to trigger a sell-off.
“This current oil market malaise is as much about risk aversion as anything else,” Innes said.
Source: Spglobal.com