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The Recession-Oil-Crash Might be Here as Crude Tumbles $10

Commodities Jul 05, 2022 03:11PM ET
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© Reuters.

By Barani Krishnan

Investing.com -- The back-and-forth recession story in oil made a stunning lurch forward on Tuesday as crude tumbled more than $10 a barrel, whipping bulls just settling in from post-holiday languor.

The dollar’s jump to two-decade highs on expectations of aggressive Fed rate hikes also incentivized selling in oil, which tends to attract less buying from non-U.S. entities when the value of the greenback surges.  

The Dollar Index, which pits the greenback against six major currencies, leapt 1.5% to above 106.5 points, its highest since December 2002. The dollar has rallied with few stops since November last year on bets of aggressive rate hikes by the Federal Reserve, or Fed, which has just started delivering on those expectations.

New York-traded West Texas Intermediate, or WTI, settled down $8.93, or 8.2%, at $99.50 per barrel, just below the key bullish mark of $100. It fell to an intraday low of $97.47 earlier. WTI did not trade on Monday as U.S. markets were closed for the 4th of July Independence Day holiday. The U.S. crude benchmark had finished June down more than 7%.

London-traded Brent crude, the global benchmark for oil, settled down $10.73, or 9.5%, at $102.77 per barrel after an intraday low of $101.14. Brent rose 1.7% in the previous session. It lost nearly 6% in June, after holding steadily near $120 for weeks since scaling almost $140 in March.

“We’ve been warning longs in the market for a while not to get too cushy with $120 oil with all this recession talk going around,” said John Kilduff, partner at New York energy hedge fund Again Capital. “Today is proof that the recession story is only going to go forth, and with stunning velocity. Of course, there’ll be pullbacks in the narrative from time to time. So, welcome to a new era of volatility as well.”

The drone of recession talk is expected to get louder across the United States after the Atlanta Federal Reserve’s forecast of a second straight quarter of economic decline for the year. 

Wednesday’s minutes from the US central bank’s June meeting will give investors some insight into how policymakers see the future path of interest rates as markets remain focused on the prospect of a recession.

The Fed is expected to push ahead with another 75 basis point rate hike at its upcoming July meeting, but the path for September is less clear.

Deepening worries about a recession are weighing on the demand outlook for oil despite tight supply concerns and prospects of U.S. job gains in June.

June’s nonfarm payrolls are expected to have slowed from May, but remaining in solid, positive territory. Economists tracked by Investing.com say some 268,000 payrolls were probably added last month — versus the 390,000 in May — holding unemployment at 3.6% for a third straight month. A jobless rate of 4% or below is seen by the Fed as full employment.

Economists say the United States may be witnessing the beginnings of a real economic shakedown, only that it’s been too numb to notice because of the miraculous resilience of its consumers insulated by two years of pandemic aid money; a housing market still running on old stimulus energy; and stock markets often coming back after a few days of selloffs.

But U.S. consumers won’t be superheroes forever and the slide into the economic abyss could come faster than thought, warn analysts.

“I think the market is caught between two narratives,” Scott Redler, partner with T3Live.com, said in comments carried by CNBC. “I don’t know if it wants good news or bad news. At first, the hot economic news was bad because the Fed could go another 75 basis points and keep going, but now the market wants softer news. But is the landing going to be soft or hard? It’s like threading the needle right now.”

In oil markets especially, the prospect of a recession has created more two-way price action in recent weeks, preventing any unsustainable surges in the price of crude even as China reopened from COVID shutdowns and an oil workers’ strike in Norway loomed.

The Recession-Oil-Crash Might be Here as Crude Tumbles $10
 

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Comments (13)
Andrew Ulferts
Andrew Ulferts Jul 06, 2022 8:06AM ET
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I don’t think so Barani. We aren’t even close to the top yet. Nasdaq green = no recession fears. Lying media trying to dissuade oil investment.
Eldrish eldoran
Eldrish eldoran Jul 05, 2022 4:55PM ET
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Hope it goes down to 4-50 then Russia will throw in the towel in there war as well
Meru Pet
Meru Pet Jul 05, 2022 4:49PM ET
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it deserves to take some chill if the price endangers our economies
Matt Villar
Matt Villar Jul 05, 2022 4:48PM ET
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I'm sure prices will fall at the pump in a few weeks.
CS Greer
CSGreer Jul 05, 2022 4:48PM ET
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I have no doubt... because gas is so high right now, nobody can afford it... demand will HAVE to fall.
Nils Hullmann
Nils Hullmann Jul 05, 2022 4:48PM ET
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CS Greer can you choose to drive to work ?
Dominic Mazoch
Dominic Mazoch Jul 05, 2022 4:06PM ET
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Instead of worrying about Fed rates, how about selling off stocks a company bought back and/or issuing new stock and use that interest free money?. Do not depend on the Fed!
CS Greer
CSGreer Jul 05, 2022 4:06PM ET
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Issuing new stock dilutes shares and screws everybody but the company.
Dominic Mazoch
Dominic Mazoch Jul 05, 2022 4:04PM ET
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why does it take forever to get Fed Mtg minutes? Today a court reporter can get a raw court transcript out in hours ...
Harimy Baiadori
Harimy Baiadori Jul 05, 2022 3:40PM ET
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Nonetheless, Biden is going to Saudi Arabia to ask for more oil. Ain't it just a bit strange?
Brad Albright
Brad Albright Jul 05, 2022 3:40PM ET
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It is strange. Why doesn't he go to Barbados instead? Or Jamaica? Very strange.
Nick Leeds
Nick Leeds Jul 05, 2022 3:36PM ET
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We are going to be having the fed cut rates later this year and into 2023... Inflation has definitely peaked
john smith
john smith Jul 05, 2022 3:36PM ET
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not even close
James Victorino
James Victorino Jul 05, 2022 2:43PM ET
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Amazingly, stonks are welcoming recession! smh  You can't make this stuff up.  You would think the euqity markets would tank over fears of recession as opposed to rallying.
Mohammad Baghban Shemirani
Mohammad Baghban Shemirani Jul 05, 2022 2:43PM ET
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Why is this the case, educate me
Mike Wellons
Mike Wellons Jul 05, 2022 2:43PM ET
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Recession means lower demand for goods and services, which in turn means lower inflation, which in turn means the Fed ceases tightening, which in turn means lowering borrowing costs, which in turn means increasing demand and hence stock growth ... whew! The stock market is like chess, always need to be planning about 5 moves in advance ;)
patricio Silva
patricio Silva Jul 05, 2022 2:43PM ET
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Yeah tomorrow oil bounce back they say ita war inflation bla bla bla
mango bahara
mango bahara Jul 05, 2022 2:14PM ET
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