Oil prices retreat on China COVID worries and recession fears

Oil futures fell on Monday, under pressure as Beijing tried to contain a further rise in COVID-19 cases and global stocks tumbled as the price index shocks to the Last week’s hotter-than-expected US consumer continued to spread through financial markets.

price action
  • West Texas Intermediate crude for delivery in July CL.1,
    -1.48%

    CL00,
    -1.48%

    CLN22,
    -1.48%
    fell $1.89, or 1.6%, to $118.78 a barrel on the New York Mercantile Exchange.

  • August Brent crude BRN00,
    -1.29%

    BRNQ22,
    -1.29%,
    the global benchmark, fell $1.64, or 1.3%, to $120.33 a barrel on ICE Futures Europe. WTI and Brent hit three-month highs last week.

  • Back to Nymex, July gasoline RBN22,
    -1.61%
    fell 2.2% to $4.0821 a gallon, continuing a pullback from last week’s all-time highs, while July HON22 heating oil,
    -0.59%
    was down 0.8% at $4.3297 a gallon.

  • July Natural Gas Futures NGN22,
    -2.68%
    lost 2.5% to $8.63 per million British thermal units.

Market factors

Beijing has decided to increase testing after a COVID-19 outbreak linked to a nightclub. The outbreak has infected at least 183 people in 15 districts, according to reports.

“Hopes that demand for oil would quickly and completely return to normal after the lifting of previous lockdowns in China, the world’s second-largest oil consumer, have therefore proven premature,” said Carsten Fritsch, commodities analyst at Commerzbank, in a note.

Meanwhile, U.S. stocks appeared on course for another session of heavy losses as a sell-off in global equities continued following Friday’s Consumer Price Index reading that showed inflation hitting a 40-year high of 8.6% year-on-year in May. .

“If the Fed were to raise interest rates significantly higher in response and the U.S. economy slips into recession, that would also affect demand for oil in the world’s largest oil-consuming country,” Fritsch said, noting concerns that plans presented by the European Central Bank began raising rates last week, sparking fears of recession in the euro zone.

A further surge in the US dollar on expectations of the US Federal Reserve to step up its aggressive monetary tightening efforts was also a headwind for crude and other commodities priced in unity. A stronger dollar makes them more expensive for users of other currencies.

The ICE US Dollar Index DXY,
+0.69%,
a measure of the currency against a basket of six major rivals, rose 0.6%.


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Felix J. Dixon