Oil posted another sharp intraday decline as a Covid-19 resurgence in China added to concerns about a global economic slowdown.
West Texas Intermediate lost as much as 5.5% to trade back below US$100 a barrel, with losses deepening around noon London time. Dwindling liquidity has left prices vulnerable to sharper moves of late, with Brent futures last week recording their third-largest slump ever in dollar terms.
Bearish sentiment has filtered through commodities as rising virus cases in China and looming US inflation data stoke concerns about demand. A stronger dollar has piled on the pressure, making oil less attractive to investors and more expensive for emerging markets.
Crude has tumbled since early June on escalating fears the US may be heading for a recession as central banks hike rates aggressively to combat inflation. Nations are experiencing the first global energy crisis and “we might not have seen the worst of it yet,” IEA Executive Director Fatih Birol said in Sydney. OPEC’s first look at 2023 showed no relief from oil market tightness.
“More of the same with commodities taking a beating across the board,” said Ole Hansen, head of commodities strategy at Saxo Bank. There are also “worries that the US CPI print on Wednesday may surprise to the upside again, just like it did last month. With that the risk of even an more aggressive growth-debilitating rate hike.”
President Joe Biden is scheduled to visit Saudi Arabia this week during a tour to the Middle East as he seeks to tame high energy prices that have roiled the global economy.
The US believes OPEC has room to raise production should Biden’s upcoming visit to the region yield any agreements. France’s President will meet with the leader of the UAE next week to discuss oil supplies.
The market has tightened this year, in part due to upended trade flows from Russia after its invasion of Ukraine. US Energy Secretary Jennifer Granholm is set to meet with counterparts from Australia, India and Japan during a visit to Sydney, and will use the talks to rally support for a cap on Russian prices.