NEW YORK | Oil prices plunged on Tuesday as fears of a recession in crude-consuming countries that might destroy demand outweighed worries regarding supply disruptions.
Brent crude from the North Sea, for September delivery, tumbled 9.45% to $102.77 a barrel, following falling nearly 10%.
US West Texas Intermediate (WTI) crude for August delivery, meanwhile, fell 8.23% to $99.50, slipping below $100 a barrel for the first time since May 11.
“Obviously the trajectory of oil has completely reversed,” Phil Flynn of Price Futures Group told AFP.
“There are a lot of concerns regarding a possible recession and also regarding the fact that China has imposed tests for Covid-19, en masse,” said the analyst.
China’s health ministry reported 335 new positive cases nationwide on Tuesday and with the country imposing a zero-tolerance policy on the disease, authorities launched a new round of mandatory PCR tests in most districts of Shanghai.
“This raises concerns that China’s oil demand may weaken,” Flynn said.
For Ipek Ozkardeskaya, analyst for Swissquote, “recession fears reduce the outlook for oil demand and lower prices”.
By falling below the 100 dollar mark for almost two months for the WTI, oil has crossed an important “psychological threshold”. The analyst raises the possibility of a drop in prices to a next fateful level, that of 85 dollars a barrel.
In a recession scenario, Citi analysts even suggest that oil prices would fall to 65 dollars a barrel by the end of the year, then to 45 dollars in the absence of intervention by the Organization of oil-exporting countries (OPEC+).
“Everything is happening a bit at the same time and the market is very nervous regarding the direction the economy is taking, which is causing a lot of volatility,” added Phil Flynn, as Europe recorded disappointing activity indicators.
In addition to the United States, “some find that the demand for gasoline was not as supplied as anticipated during the long holiday weekend of July 4”, the Independence Day, continued the analyst.
Supply in the background
The oil market is “turning away from inflation” and heading towards “economic desperation”, said Stephen Innes, analyst at Spi Asset Management.
“PMI indices underline the risks of recession in the euro zone”, argued Neil Wilson, analyst at Markets.com, for whom “recession seems inevitable”.
Growth in economic activity in the euro zone slowed sharply in June in the private sector, to its lowest level in 16 months, according to the final composite PMI index published on Tuesday by S&P Global.
Fears of a global recession have therefore taken precedence over “the most obvious supply problems” which are now “relegated to the background”, says Mr. Innes.
“The current conflicting signals given by the (bearish) demand and (bullish) supply of the oil equation make forecasting oil prices a laborious task,” commented Tamas Varga, analyst at PVM Energy.
“It is impossible to predict when the focus will shift irrevocably from supply to demand,” he explains.
Fears of a global recession also continued to dominate industrial metals markets, particularly copper.
Heavily used in industry, especially for making electrical circuits, copper is known to reflect the state of health of the world economy, hence its nickname of Doctor Copper (Dr Copper).
The red metal is thus very sensitive to a potential slowdown in global economic activity, serving as a barometer of the economy.
For the first time in 17 months, copper traded below 8,000 dollars per ton, falling 21% since the start of the year. On Tuesday, it touched 7627.00 dollars per ton.
