Fears of a global recession caused the price of a barrel in London to fall by 7.10% to 99.49 dollars and the WTI to tumble by 7.92% to 95.84 dollars.
Oil tumbled on Tuesday, caught in a climate of anxiety over the possibility of a global recession, which would stifle demand, even if many signals continue to predict a tight market for a long time.
North Sea Brent crude for September delivery erased 7.10% and finished at $99.49, closing below $100 for the first time in three months.
The barrel of American West Texas Intermediate (WTI), for delivery in August, plunged 7.92% to 95.84 dollars.
“Oil is in free fall”, plunging “as the outlook for growth deteriorates”, accentuating concerns regarding demand, said Craig Erlam, analyst at Oanda.
“In the West, the combination of high energy prices and rising interest rates is fueling fears of a recession which would have a serious impact” on the black gold market, explains Carsten Fritsch, analyst for Commerzbank.
A new wave of health restrictions in China is also worrying investors, raising fears of further shutdowns.
Macau began its first lockdown since the pandemic began on Monday to stem its worst wave of COVID-19.
“There is a slowdown in demand from the world’s largest rough importer and fears regarding what Friday’s second-quarter growth numbers will reveal,” said Victoria Scholar, an analyst at Interactive Investor.
For the analyst, the Chinese government “is once once more sacrificing its economy in pursuit of draconian public health objectives”.
China, for example, confined the 320,000 inhabitants of a locality in the center of the country for three days following the discovery of a single positive case of Covid-19.
“Extremely tight market”
The refrain of a faltering economy resonates among investors, who are massively disengaging from futures contracts on all commodities, also noted Andy Lipow, of Lipow Oil Associates.
“There is a disconnect between the futures markets and the physical market,” he said.
For Matt Smith, of Kpler, the soaring of the dollar, which reached parity with the euro on Tuesday, also played, “because it increases the concern that crude oil will become too expensive for any other currency than the dollar”.
“This dropout (of prices) is more a market that is going too fast and trying to integrate future bad news, rather than this bad news,” pleaded the analyst.
“It’s pretty crazy, considering that there hasn’t really been any news” on Tuesday, added Andy Lipow.
The analyst pointed out that the operators had completely overlooked the monthly report of the Organization of the Petroleum Exporting Countries (OPEC), which nevertheless expects demand for oil to continue to grow in 2023, but at a slower pace.
The American Energy Information Agency (EIA) makes the same forecast, and announces an increase in consumption of 2 million barrels per day next year, once morest 2.2 this year.
Demand in 2023 should be supported by a “still solid economic performance of major consumer countries, as well as an improvement in the geopolitical situation and the management of Covid-19 in China”, estimated OPEC.
The report states that “the market remains extremely tense,” noted Craig Erlam, especially as concerns regarding supply persist, particularly with sanctions on Russian oil.
Last element superbly ignored by traders, the comments of the director of the International Energy Agency (IEA), Fatih Birol, for whom “the world has never known an energy crisis of such depth and of such complexity.
“I think we may not have seen the worst of it yet,” he added, during an intervention in Sydney (Australia).
“The correction (of prices) has gone too far,” argued Andy Lipow. “The market has suffered so much that it will take a few days to recover, but we are much closer to a bottom than a top.”
“Oil will eventually find its way back above $100,” anticipated Edward Moya of Oanda, “but for now it seems comfortable around $95.”