Oil plummeted by about $10 a barrel on Tuesday as concerns of a global recession curtailing demand overshadowed a strike by Norwegian oil and gas workers that could cut exports and exacerbate supply shortages.
Global benchmark Brent crude was down $10.65, or 9.4%, at $102.85 a barrel by 12:46 p.m. EDT (1645 GMT). U.S. West Texas Intermediate (WTI) crude fell $9.36, or 8.6%, to $99.07 a barrel from Friday’s close. There was no WTI settlement on Monday because of a U.S. holiday.
“The market is getting tight, but still we’re getting creamed and the only way you can explain that away is fear of recession in every risk asset,” said Robert Yawger, director, energy futures at Mizuho in New York. “You’re feeling the pressure.”
Oil futures sank along with equities, which often serve as demand indicator for crude, as investors fretted about the possibility of an economic downturn as central banks across the world take aggressive actions to limit inflation. If a recession does hit, and takes a significant bite out of energy demand, more wild swing to the downside could be in store, said Andy Lipow, president of Houston-based Lipow Oil Associates.
“The commodity market can be quite unforgiving when you go into a recession and supplies outstrip demand,” Lipow said.
Meanwhile, safe-haven demand for U.S. Treasuries boosted the dollar by about 1.5%, which in turn weighed on greenback-denominated oil as it becomes more expensive for buyers holding other currencies. The euro tumbled to a two-decade low as data showed business growth across the euro zone slowed further last month, with forward-looking indicators suggesting the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.
In South Korea, inflation hit a near 24-year high in June, adding to concerns about slowing economic growth and oil demand. Supply concerns still linger, initially lifting WTI and Brent earlier in the session, due to expected output disruption in Norway, where offshore workers began a strike.
By Saturday, the strike in Europe’s second-largest energy supplier after Russia, will reduce daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56% of daily gas exports, and cut 341,000 of barrels per day, the Norwegian Oil and Gas (NOG) employer’s lobby said.
Saudi Arabia, the world’s top oil exporter, raised August crude oil prices for Asian buyers to near record levels amid tight supply and robust demand. Meanwhile, Russia’s former President Dmitry Medvedev said a reported proposal from Japan to cap the price of Russian oil at about half its current level would mean less oil on the market and could push prices above $300-$400 a barrel.
G7 leaders agreed last week to explore the feasibility of introducing temporary import price caps on Russian fossil fuels, including oil, in an attempt to limit resources to finance Moscow’s “special military operation” in Ukraine.