A view of the Phillips 66 Los Angeles refinery (foreground), which processes domestic and imported crude oil into gasoline, aviation and diesel fuels, and the Kinder Morgan Carson Terminal (background) storage tanks for refined petroleum products, at sunset sunshine in Carson, California, United States, March 11, 2022. REUTERS/Bing Guan
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- Oil posted its biggest daily percentage drop since March
- China’s Shanghai announces two new rounds of mass testing for COVID
- The Euro returned to 2002 levels, the dollar rose due to safe-haven demand
- The declines in trade spread to natural gas, gasoline, and oil
- Norway’s government calls off strike in oil and gas sector, union says
NEW YORK, July 5 (Reuters) – Oil fell about 9 percent on Tuesday in its biggest daily drop since March on growing fears of a global recession and lockdowns in China that could dampen demand.
Global benchmark Brent crude settled at $102.77 a barrel, losing $10.73, or 9.5%. U.S. West Texas Intermediate (WTI) crude oil ended 8.2%, or $8.93, lower at $99.50 a barrel. There was no WTI settlement on Monday due to a US holiday.
Both benchmarks posted their biggest daily percentage declines since March 9 and hit the share prices of major oil and gas companies.
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“We’re getting creamed, and the only way you can explain that is the fear of a recession,” said Robert Yauger, director of energy futures at Mizuho. “You feel pressure.”
Oil futures sank along with natural gas, gasoline and stocks that often serve as an indicator of crude oil demand.
Meanwhile, China’s massive COVID-19 testing has raised fears of potential shutdowns that threaten to deepen cuts in oil consumption.
Shanghai said it would begin new rounds of mass testing of its 25 million residents over a three-day period, citing an attempt to trace infections linked to an outbreak at a karaoke bar. Read more
“We are seeing some panic liquidation. A lot of nervousness,” said Dennis Kiesler, senior vice president of trading at BOK Financial.
Concerns that demand during the U.S. summer driving season will decline after the Fourth of July holiday also appear to be weighing on the market, Kiesler said.
The Dow Jones Industrial Average (.DJI) fell about 1%, while the S&P 500 (.SPX) fell less than 1%. U.S. natural gas prices fell 4.7 percent, heating oil fell about 8 percent, and gasoline for New York Harbor delivery fell 10.5 percent.
If the recession does hit and significantly reduces energy demand, more wild swings to the downside can be expected, said Andy Lipow, president of consulting firm Lipow Oil Associates.
“The commodity market can be pretty unforgiving when you get into a recession and supply outstrips demand,” Lipow said.
Meanwhile, demand for US Treasuries lifted the dollar by about 1.3%, which in turn weighed on greenback-denominated oil as it became more expensive for buyers holding other currencies.
The euro fell to a two-decade low as data showed business growth in the eurozone slowed further last month, with forecast indicators suggesting the region could slip into recession this quarter as the cost-of-living crisis takes hold users beware. Read more
In South Korea, inflation hit a nearly 24-year high in June, fueling concerns about slowing economic growth and oil demand. Read more
Supply concerns are still lingering, initially lifting WTI and Brent earlier in the session due to an expected production disruption in Norway, where offshore workers have gone on strike. Read more
Late in the session, the Norwegian government intervened to stop a strike that has reduced oil and gas production, a union leader told Reuters.
Saudi Arabia, the world’s biggest oil exporter, raised August crude prices to Asian buyers to near-record highs amid tight supply and strong demand. Read more
Meanwhile, former Russian President Dmitry Medvedev said Japan’s reported proposal to cap the price of Russian oil to about half its current level would mean less oil on the market and could push prices above $300-$400 a barrel. Read more
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Additional reporting by Bozorgmehr Sharafedin in London, Florence Tan and Muyu Xu; Editing by Margherita Choi and Edmund Blair
Our standards: The Thomson Reuters Trust Principles.
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