West Texas Intermediate edged higher in Asia after collapsing by 8% to the lowest close since late April as mounting angst about a slowdown spurred a sell-off in commodities including crude. Goldman Sachs said global consumption was running ahead of supply, and inventories were nearing critically low levels, although Citigroup Inc. warned prices could fall below $70 a barrel.
Crude oil has opened the third quarter on a volatile footing as concerns about a potential recession rattled financial markets. With central banks including the Federal Reserve jacking up interest rates to tame inflation, investors have been pricing in the consequences of a slowdown even as physical crude markets continue to show signs of vigor and the war in Ukraine drags on.
“While the odds of a recession are indeed rising, it is premature for the oil market to be succumbing to such concerns,” Goldman Sachs analysts including Damien Courvalin said in a note. “The global economy is still growing, with the rise in oil demand this year set to significantly outperform GDP growth.”
In China, there are signs of rising consumption as the world’s biggest oil importer emerges from strict virus lockdowns that pummeled demand. Overall consumption of gasoline and diesel last month was at almost 90% of June 2019 levels, according to people with knowledge of the energy industry.
Crude had been supported in recent weeks by interruptions to supplies including in Libya, as well as declines in key US inventories. In addition, there’s been evidence producers in the Organization of Petroleum Exporting Countries and allies have been unable to deliver supply increases in full.
Oil markets remain steeply backwardated, a bullish pattern in which near-term prices command a premium to longer-dated ones. Brent’s prompt spread — the difference between its two nearest futures contracts — was $3.98 a barrel in backwardation, up from around $2.50 a barrel a month ago.
July 06, 2022