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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Crude oil prices failed to stage a recovery early Wednesday after recessionary fears led to steep losses in the previous session, though at least one analysis finds nothing much has changed apart from the mood.
Volatility should be expected in the current market climate. There are supply-side concerns ranging from the war in Ukraine to underperformance among members of the Organization of the Petroleum Exporting Countries (OPEC). On the other side of the equation, demand remains resilient despite looming fears of a recession.
It was the latter force that sank the price of crude oil during the previous session. After the Federal Reserve Bank of Atlanta lowered its snap estimate of second-quarter gross domestic product from minus 1% to minus 2.1%, the bottom fell out.
Brent crude oil, the global benchmark for the price of oil, lost 9.45% to finish the Tuesday session at $102.77 per barrel. West Texas Intermediate, the U.S. benchmark, lost 8.2% to settle at $99.50 per barrel. Both indices hit their lowest point since late April.
For the bears, production woes from Ecuador were resolved during the weekend. State-run Petroecaudor (Quito) said it expects to be back to normal operations by the end of the month. Roughly three weeks of national strikes from indigenous groups demanding better living conditions and protection from the Ecuadorian government resulted in a loss of about 2 million barrels of production from the OPEC member. For related information, see July 7, 2022, article - Ecuador Recovers From Protests as Oil Production Stabilizes.
Elsewhere, Italian energy company Eni (NYSE:E) (Rome) and its Spanish counterpart Repsol (Madrid) secured concessions from the U.S. State Department to start delivering Venezuelan oil to Europe, which is scrambling to find replacements for Russian crude.
The Atlanta Fed's GDPNow reading was a concern given that the technical definition of a recession is two straight quarters of negative GDP. First quarter GDP declined 1.6%, lower than expected.
The bears seized the day. The $10+ loss per barrel for Brent, according to Swiss investment bank UBS, was the third-largest decline since futures trading began in 1988.
"Among the reasons given for this plunge: recession fears, the unwinding of the oil trade as inflation hedge, a stronger U.S. dollar, hedge funds reacting to negative oil price momentum, producer hedging, and new mobility restriction concerns in China," UBS analysts said in a morning research note.
Few of those things, however, are new. What is new is the start of the second quarter of a year that started with hope that the COVID-19 pandemic had run its course. Inflationary fears, meanwhile, were riding that wave just as Russian military forces crossed into Ukraine in February.
Crude oil prices by the start of the trading day Wednesday were falling deeper into the red after some dip-buying gave the market a lift early on. Nevertheless, not much has actually changed, and UBS kept its positive outlook on crude oil prices in place, noting that an economic slowdown has yet to curb demand.
The sell-off, then, looks like it was driven by sheer sentiment.
"Despite yesterday's bloodbath, it must be noted that there has been no change in oil fundamentals," Stephen Brennock, an analyst at London oil broker PVM, wrote. "The near-term outlook remains supportive."
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Volatility should be expected in the current market climate. There are supply-side concerns ranging from the war in Ukraine to underperformance among members of the Organization of the Petroleum Exporting Countries (OPEC). On the other side of the equation, demand remains resilient despite looming fears of a recession.
It was the latter force that sank the price of crude oil during the previous session. After the Federal Reserve Bank of Atlanta lowered its snap estimate of second-quarter gross domestic product from minus 1% to minus 2.1%, the bottom fell out.
Brent crude oil, the global benchmark for the price of oil, lost 9.45% to finish the Tuesday session at $102.77 per barrel. West Texas Intermediate, the U.S. benchmark, lost 8.2% to settle at $99.50 per barrel. Both indices hit their lowest point since late April.
For the bears, production woes from Ecuador were resolved during the weekend. State-run Petroecaudor (Quito) said it expects to be back to normal operations by the end of the month. Roughly three weeks of national strikes from indigenous groups demanding better living conditions and protection from the Ecuadorian government resulted in a loss of about 2 million barrels of production from the OPEC member. For related information, see July 7, 2022, article - Ecuador Recovers From Protests as Oil Production Stabilizes.
Elsewhere, Italian energy company Eni (NYSE:E) (Rome) and its Spanish counterpart Repsol (Madrid) secured concessions from the U.S. State Department to start delivering Venezuelan oil to Europe, which is scrambling to find replacements for Russian crude.
The Atlanta Fed's GDPNow reading was a concern given that the technical definition of a recession is two straight quarters of negative GDP. First quarter GDP declined 1.6%, lower than expected.
The bears seized the day. The $10+ loss per barrel for Brent, according to Swiss investment bank UBS, was the third-largest decline since futures trading began in 1988.
"Among the reasons given for this plunge: recession fears, the unwinding of the oil trade as inflation hedge, a stronger U.S. dollar, hedge funds reacting to negative oil price momentum, producer hedging, and new mobility restriction concerns in China," UBS analysts said in a morning research note.
Few of those things, however, are new. What is new is the start of the second quarter of a year that started with hope that the COVID-19 pandemic had run its course. Inflationary fears, meanwhile, were riding that wave just as Russian military forces crossed into Ukraine in February.
Crude oil prices by the start of the trading day Wednesday were falling deeper into the red after some dip-buying gave the market a lift early on. Nevertheless, not much has actually changed, and UBS kept its positive outlook on crude oil prices in place, noting that an economic slowdown has yet to curb demand.
The sell-off, then, looks like it was driven by sheer sentiment.
"Despite yesterday's bloodbath, it must be noted that there has been no change in oil fundamentals," Stephen Brennock, an analyst at London oil broker PVM, wrote. "The near-term outlook remains supportive."
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
