Oil Extends Volatile Week as Tight Market Vies With Slowdown

Jul 7, 2022

(Bloomberg) Oil fluctuated, with prices on course for a deep weekly loss, as investors weighed concerns that a potential global slowdown would hollow out energy demand against signs of still-tight physical markets.

US benchmark West Texas Intermediate crude traded above $99 a barrel, still more than 8% lower this week. Over the past month, escalating fears that a looming recession will erode consumption have driven prices down. The contracts found some support on Thursday as China mulled $220 billion of stimulus measures.

Gauges of real-world crude supply show little to suggest that the oil market is cooling. Nearby WTI contracts have surged relative to later ones, a move that indicates a strong market as traders pay up to secure barrels for immediate delivery. Physical supplies continue to trade at strong premiums to their benchmarks.

Oil’s retreat means the world’s most crucial commodity has given up the bulk of the gains seen in the wake of Russia’s invasion of Ukraine, which lifted the US benchmark above $130 a barrel in March. Surging inflationary pressures have prompted the Federal Reserve to tighten policy aggressively, which in turn spurred expectations that a demand-sapping recession may lie ahead. That has weighed on headline prices, but supply tightness lingers.

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“While supply is constrained by structural underinvestment, demand remains resilient in the face of recessionary concerns,” JPMorgan Chase & Co. analysts including Christyan Malek wrote in a note to clients.

Prices:
WTI for August delivery gained 0.5% to $99.05 a barrel at 11:54 a.m. in London. The contract swung between a 1.1% gain and loss of 2%. Brent for September settlement added 0.4% to $101.12 a barrel.

Until recently, surging refined fuels prices had helped keep the market strong, boosting the incentive for refiners to process more crude. Shell Plc said strong margins from fuel production have added more than $1 billion to earnings in the last quarter. In recent days, however, some of the firmness in fuel markets has dissipated.

The industry-funded American Petroleum Institute reported that US crude stockpiles rose 3.8 million barrels last week, including a gain at the key storage hub at Cushing, Oklahoma, according to people familiar with the widely-watched figures. Official data on holdings will follow later on Thursday.

Traders were also tracking developments in China, the world’s largest oil importer. Shanghai reported the most coronavirus infections since late May, fueling concerns that the financial hub may look to ramp up restrictions to curb the pace of transmission, potentially harming energy demand.