Oil prices plummet further on inflation, Covid concerns

(Bloomberg) — Oil tumbled as concerns about a global economic slowdown and growing Covid-19 cases in China reduced risk appetite among traders. 

West Texas Intermediate lost as much as 8% to slip under $96 a barrel. Rising virus cases in China and looming US inflation data are stoking concerns about demand. Meanwhile, dwindling liquidity is also exacerbating price moves while money managers turned more bearish on the main oil benchmarks last week, cutting their net-long positions to the lowest since 2020. 

“The volatility in commodity markets increases the stakes for putting money to work,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “The decimation of other commodities has also reduced risk appetite for crude even in supply constrained market.”

Despite recession fears, several energy administrations agree that supply tightness is set to worsen. IEA’s Executive Director Fatih Birol said nations “might not have seen the worst” of a global energy crunch while OPEC’s first look at 2023 showed no relief from oil market tightness. Later on Tuesday, the EIA will release its Short-Term Energy Outlook. 

Crude has fallen since early June on escalating fears the US may be heading for a recession as central banks hike rates aggressively to combat inflation. Yet physical markets continue to show signs of strength. Premiums for North Sea oil were bid at the highest since at least 2008. The oil futures curve also remains backwardated, where near-term contracts are more expensive than those for later delivery.

President Joe Biden is scheduled to visit Saudi Arabia this week during a tour to the Middle East as he seeks to tame high energy prices that have roiled the global economy. 

The US believes OPEC has room to raise production should Biden’s upcoming visit to the region yield any agreements. France’s President will meet with the leader of the UAE next week to discuss oil supplies.