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Oil tumbles 9% on recession demand destruction fears

Commodities Jul 05, 2022 03:56PM ET
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© Reuters. FILE PHOTO: A view of the Phillips 66 Company's Los Angeles Refinery (foreground), which processes domestic & imported crude oil into gasoline, aviation and diesel fuels, and storage tanks for refined petroleum products at the Kinder Morgan Carson Termina

By Laila Kearney

NEW YORK (Reuters) - Oil plummeted about 9% on Tuesday in the biggest daily drop since March on growing fears of a global recession and lockdowns in China that could slash demand.

Global benchmark Brent crude settled at $102.77 a barrel, losing $10.73, or 9.5%. U.S. West Texas Intermediate (WTI) crude ended 8.2%, or $8.93, lower at $99.50 a barrel. There was no WTI settlement on Monday because of a U.S. holiday.

Both benchmarks logged their biggest daily percentage decline since March 9 and hit share prices of major oil and gas companies.

"We're getting creamed and the only way you can explain that away is fear of recession," said Robert Yawger, director of energy futures at Mizuho. "You're feeling the pressure."

Oil futures sank along with natural gas, gasoline and equities, which often serve as demand indicator for crude.

Meanwhile, mass COVID-19 testing in China stocked fears of potential lockdowns that threaten to deepen cuts to 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 trace infections linked to an outbreak at a karaoke bar.

"We're seeing some panic liquidation. Lots of nervousness," said Dennis Kissler, senior vice president for trading at BOK Financial.

Concerns that U.S. summer driving season demand would fall off after the Fourth of July holiday also appeared to weigh on the market, Kissler said.

The Dow Jones Industrial Average slipped about 1% while the S&P 500 Index fell less than 1%. U.S. prices for natural gas dropped 4.7%, heating oil fell about 8% and gasoline for delivery at New York Harbor fell 10.5%.

If a recession does hit, and takes a significant bite out of energy demand, more wild swings to the downside could be in store, said Andy Lipow, president of consultancy Lipow Oil Associates.

"The commodity market can be quite unforgiving when you go into a recession and supplies outstrip demand," Lipow said.

Meanwhile, safe-haven demand for U.S. Treasuries boosted the dollar by about 1.3%, which in turn weighed on greenback-denominated oil as it becomes more expensive for buyers holding other currencies. [USD/]

The euro tumbled to a two-decade low as data showed business growth across the euro zone slowed further last month, with forward-looking indicators suggesting the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.

In South Korea, inflation hit a near 24-year high in June, adding to concerns about slowing economic growth and oil demand.

Supply concerns still linger, initially lifting WTI and Brent earlier in the session, due to expected output disruption in Norway, where offshore workers began a strike.

Late in the session, the Norwegian government intervened to stop the strike that had cut oil and gas output, a labour union leader told Reuters.

Saudi Arabia, the world's top oil exporter, raised August crude oil prices for Asian buyers to near record levels amid tight supply and robust demand.

Meanwhile, Russia's former President Dmitry Medvedev said a reported proposal from Japan to cap the price of Russian oil at about half its current level would mean less oil on the market and could push prices above $300-$400 a barrel.

Oil tumbles 9% on recession demand destruction fears
 

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Comments (23)
Bao Vinh
Bao Vinh Jul 06, 2022 2:34AM ET
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recession, fears and then supply fears. back and forth it goes. In the end it's just the news manipulating the price of the commodities so that they can profit off of the average Joe Trader.
ZS Beck
ZS Beck Jul 05, 2022 10:24PM ET
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I'm tired to read about the same comments below. A couple of months ago this site was much better, I'm tired of these spam comments
Harimy Baiadori
Harimy Baiadori Jul 05, 2022 3:16PM ET
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Oil comes down due to "recession fears" but Biden is going to Saudi Arabia to ask for more oil.
Shithead Dickshit
Shithead Dickshit Jul 05, 2022 3:16PM ET
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US sure love to bomb the middle east, just to beg for their oil later
Robby Pandher
Robby Pandher Jul 05, 2022 2:51PM ET
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Oil price shock will come when existing wells are depleted and output goes down due to lack of investment and exploration.
Selfmade DC
Selfmade DC Jul 05, 2022 1:42PM ET
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Biden pressed the button, US tryna bring down oil demand since they know putting a cap on russian oil prices wont work
Robert Murphy
Robert Murphy Jul 05, 2022 12:34PM ET
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This drop is purely speculation. Not based on any fundamentals. Then again we do not know what the Supply vs Demand looks like because the Energy Department hasn’t releaaed the EIA report in almost 3 weeks because of ‘Computer Problems’.
Am Kh
Am Kh Jul 05, 2022 12:34PM ET
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Unless there is something we (commun people) don’t know abouy, yes, this drop is pure speculation. The EIA release its report last week though, with a drop for crude inventories and a build ups for refined products.
Don Getty
Don Getty Jul 05, 2022 12:34PM ET
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Am Kh  this is just manipulating the price down so the whales can jump in - there's going to be minimal demand destruction this year and next - while we will see a recession - apple making 5$/share verse 6 isn't going to lead to a lot of layoff 's - most big companies are still going to be making money - not the wild profits of the last two years but profit
Leo Philip
Leo Philip Jul 05, 2022 12:04PM ET
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The bankers are just fooling people taking oil prices virtually up and down without any change in demand and supply in reality. The question is why would demand change suddenly in one day??
Ravinder Alladi
Ravinder Alladi Jul 05, 2022 12:04PM ET
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making fools and loss our money simple
Matt Kay
Matt Kay Jul 05, 2022 12:04PM ET
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yup, manipulation by algos and whales. But long term reasoning does make sense - world about to plunge into massive recession.
MORTAL COMBAT
MORTAL COMBAT Jul 05, 2022 11:39AM ET
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I will invest in the Turkish stock market. 1 dollar is 17.5 Turkish lira. In addition, companies are very cheap, it is the cheapest stock market in the world. There are also good companies in it. There is also Aselsan, which produced the drones in the world-renowned Ukraine War. There is also Pegasus and Turkish Airlines in aviation.
Alan Rice
Alan Rice Jul 05, 2022 11:38AM ET
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WTI Target: $150.
Kerry Ditto
Kerry Ditto Jul 05, 2022 11:33AM ET
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Everything is quick. Quick falling of oil price. Deflation instead of inflation quickly changing. Now Fed has to CUT the rate. USD has to fall quickly to save the economy.
Edward Chong
Edward Chong Jul 05, 2022 11:33AM ET
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haha u are very funny.
 
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