Oil fell again, along with other key commodities, as concerns over a global economic slowdown intensified, with Federal Reserve (Fed) Chair Jerome Powell warning that a US recession is possible.
West Texas Intermediate sank towards $104 a barrel after closing at a six-week low on Wednesday. The US benchmark has lost more than 15 per cent since June 8 as warnings about the world’s economy grow steadily louder, drowning out signs the oil market remains tight.
Powell said while he didn’t see the likelihood of a recession as particularly elevated, it was a possibility. Commodity price rises “clearly” were connected to the war in Ukraine, he said.
Crude’s retreat has been accompanied by a renewed liquidity malaise exacerbating market volatility. Open interest across the main futures contracts has fallen to the lowest since 2015 in recent days.
Oil is rapidly giving up its gains in what’s been a volatile quarter as investors attempt to gauge the trajectory of the global economy and its impact on raw materials. There’s about a 50 per cent chance the world economy will succumb to a recession, according to Citigroup Inc. and Deutsche Bank AG.
“Lots of focus is on recession fears,” said Hans Van Cleef, senior energy economist at ABN Amro. “Maybe the downward pressure we see now has been pushed too far” as traders switch from previously bullish positioning, he added.
There’s still little consensus among major banks on oil’s outlook, however. Goldman Sachs Group, Inc. said in a note on Tuesday that demand is still running ahead of supply, while warning that the Fed “cannot print commodities”. Citi sees oil dropping through this year and beyond.
So far, there’s only been limited relief in refined product markets – where bigger surges have occurred than in crude. Diesel futures in Europe closed Wednesday more than $57 a barrel higher than crude, a record in data since 2011.
A US industry snapshot pointed to higher inventories. The American Petroleum Institute reported crude holdings rose by 5.6 million barrels last week, while gasoline holdings also climbed, according to people familiar with the data. Official figures from the Energy Information Administration have been delayed.