Oil prices dropped nearly 2% more on Wednesday, with U.S. West Texas Intermediate dropping below $100 from supply concerns returning to the fore even as worries about a global recession linger.
U.S. West Texas Intermediate crude dropped to $98.27 a barrel, down $2.25, or 2.24%, after closing below $100 for the first time since late April.
“Today is sort of a reset. No doubt there is short covering and bargain hunters are coming in,” said John Kilduff, partner at Again Capital LLC.
“The fundamental story regarding global tightness is still there… The sell-off was definitely overdone,” he added.
OPEC Secretary General Mohammad Barkindo said on Tuesday that the industry was “under siege” due to years of under-investment, adding shortages could be eased if extra supplies from Iran and Venezuela were allowed.
Russia’s former president Dmitry Medvedev also warned that a reported proposal from Japan to cap the price of Russian oil at around half its current level would lead to significantly less oil in the market and push prices above $300-$400 a barrel.
On the other hand, the Norwegian government on Tuesday intervened to end a strike in the petroleum sector that had cut oil and gas output, a union leader and the labour ministry said, ending a stalemate that could have worsened Europe’s energy crunch.
By Saturday, the strike would have cut daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56% of daily gas exports, while 341,000 of barrels of oil would have been lost, the Norwegian Oil and Gas (NOG) employers’ lobby said.
Worries about a recession, however, have continued to weigh on markets. By some early estimates, the world’s largest economy may have shrunk in the three months from April through June. That would be the second straight quarter of contraction, considered the definition of a technical recession.
More G10 central banks raised interest rates in June than in any month for at least two decades, Reuters calculations showed. With inflation at multi-decade highs, the pace of policy-tightening is not expected to let up in the second half of 2022.
“Although crude oil still faces the problem of a supply shortage, key factors that led to the sharp selloff in oil yesterday remain,” said Leon Li, a Shanghai-based analyst at CMC Markets. He cited policy tightening by global central banks and a likely interest rate hike by the U.S. Federal Reserve as pressuring commodities prices.
“Thus, today’s rebound could be a short-term correction for bears and oil prices are likely to remain under pressure in the near future.”