Oil in free fall, weighed down by fears of recession

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Oil in free fall, weighed down by recession fears

West Texas Intermediate barrel, for August delivery, fell below US$100 a barrel for the first time since May 11.

West Texas Intermediate, for August delivery, fell 8.23 ​​a barrel % at 99.50 US dollars, slipping below 100 dollars a barrel for the first time since May 11.

Black gold prices plunged on Tuesday, the fears of a recession in crude-consuming countries that could destroy demand outweighed concerns about supply disruptions.

A barrel of North Sea Brent crude, for September delivery, tumbled 9.45% to US$102.77 a barrel, after falling nearly 10%.

Clearly, the trajectory of oil has completely reversed, Phil Flynn of Price Futures Group told AFP.

“There are a lot of concerns about a possible recession and also about the fact that China has imposed mass testing for COVID-19.

—Phil Flynn, Analyst at Price Futures Group

China's health ministry reported 335 new positive cases nationwide on Tuesday. Additionally, with the country enforcing a zero-tolerance policy towards the disease, authorities have launched a new round of mandatory PCR testing in most districts of Shanghai.

This raises concerns that China's oil demand may weaken, Phil Flynn said.

According to Ipek Ozkardeskaya, an analyst at Swissquote, the recession fears reduce outlook for oil demand and drive down prices.

By dropping below US$100 for almost two months for 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 US$85 per barrel.

In a scenario of recession, Citi analysts are even talking about oil prices falling to $65 a barrel by the end of the year, then to $45 in the absence of government intervention. the Organization of the Petroleum Exporting Countries (OPEC+).

“It's all kind of happening at the same time and the market is very nervous about the direction the economy is going, which is causing a lot of volatility.

— Phil Flynn, analyst at Price Futures Group

Also in the United States, some find that the demand for gasoline has not been as full as expected during the long holiday weekend of July 4, Independence Day, continued the analyst.

The oil market is turning away from inflation and towards economic desperation, said Stephen Innes, analyst at Spi Asset Management.

PMI indices highlight recession risks in the euro zone, argued Neil Wilson, analyst at Markets.com, for whom the 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 more obvious supply problems which have now taken a back seat, 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.

— Tamas Varga, analyst at PVM Energy

It is impossible to predict when attention will shift irrevocably from supply to demand, adds he.

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 has traded below US$8,000 per tonne, falling 21% since the start of the month. ;year. On Tuesday, it touched $7627 per ton.

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