August 15, 2022

Oil prices are dropping, continuing the downtrend from last week

Oil collapses amid fears of recession raises fears of destroying demand

A view of Phillips’ 66 Los Angeles Refinery (front), which processes domestic and imported crude oil into gasoline, aviation, and diesel fuels and storage tanks for refined petroleum products at Kinder Morgan Carson Terminal (background), at sunset in Carson, California, United States, 11 March 2022. REUTERS/Beng Guan

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  • Oil records biggest daily percentage drop since March
  • The decline in circulation extended to natural gas, gasoline and heating oil
  • The euro returned to 2002 levels, the dollar rose due to the demand for safe haven
  • Union says Norway government halts strike in oil and gas sector

NEW YORK (Reuters) – Oil fell nearly $12 a barrel on Tuesday, the biggest daily drop since March, and the decline spread to other energy sectors amid fears of a global recession.

Brent crude, the benchmark, fell $11.88, or 10.4 percent, to $101.83 a barrel by 1:53 p.m. EST (1645 GMT). US West Texas Intermediate (WTI) crude settled at $99.50 a barrel, down 8.2%, or $8.93 a barrel. No settlement was reached on WTI on Monday due to a holiday in the United States.

The two benchmarks recorded the biggest daily percentage decline since March 9 and hurt the share prices of major oil and gas companies. Prices hit their lowest level since late April.

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“We have become amazing and the only way you can explain that away is the fear of recession,” said Robert Yoger, director of energy futures at Mizuho. “You feel pressured.”

Oil futures sank along with natural gas, gasoline and stocks, which often serve as an indicator of demand for crude oil.

In China, Shanghai said it would start new rounds of mass testing for COVID-19 for its 25 million residents, raising concerns about potential lockdowns. Read more

“We’re seeing some panic liquidation. A lot of tension,” said Dennis Kessler, senior vice president of trading at BOK Financial.

Dow Jones Industrial Average (.DJI) The S&P 500 is down about 1.4%. (.SPX) It fell less than 1%. US natural gas prices fell by 4.7%, heating oil by about 8% and gasoline for delivery in the New York port fell 10.5%.

Andy Lipow, president of consultancy Lipow Oil Associates, said that if a recession occurs, and leads to a significant drop in energy demand, there could be more extreme swings to the downside.

“The commodity market can be unforgiving when it goes into a recession and supply exceeds demand,” Lipow said.

Meanwhile, safe-haven demand for US Treasuries boosted the dollar by about 1.3%, which in turn affected dollar-denominated oil as it became more expensive for buyers holding other currencies.

The euro fell to a two-decade low as data showed that business growth across the euro zone slowed further last month, with forward-looking indications that the region could slide lower this quarter as the cost of living crisis keeps consumers wary. Read more

In South Korea, inflation hit a 24-year high in June, adding to concerns about slowing economic growth and oil demand. Read more

Supply concerns remain, as WTI and Brent crude lifted earlier in the session, due to expected production disruptions in Norway, as workers abroad began a strike. Read more

A trade union leader told Reuters that the Norwegian government had intervened late in the session to stop the strike, which had cut oil and gas production.

Saudi Arabia, the world’s largest oil exporter, raised crude oil prices in August for Asian buyers to near record levels amid tight supplies and strong demand. Read more

Meanwhile, former Russian President Dmitry Medvedev said that a proposal made by Japan to cap the Russian oil price at about half its current level would mean lower oil in the market and could push prices above $300-400 per barrel. Read more

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Additional reporting by Bozorgmehr Sharafuddin in London, Florence Tan and Moyo Shaw; Editing by Margarita Choi and Edmund Blair

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