Mayra P. Saefong, William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 07 13 2022

Oil futures fell sharply Tuesday with U.S. and global benchmark crude ending below $100, their lowest since April, hampered by a strong dollar and continued worries over COVID-19 restrictions in China that could lead to a slowdown in energy demand.

Price action

• West Texas Intermediate crude for August delivery CL.1, 0.95% CL00, 0.94% CLQ22, 0.95% fell $8.25, or 7.9%, to settle at $95.84 a barrel on the New York Mercantile Exchange. The settlement was the lowest for a front-month contract since April 11, according to Dow Jones Market Data.
  
  
• September Brent crude BRN00, 0.99% BRNU22, 0.99%, the global benchmark, dropped $7.61, or 7.1%, to $99.49 a barrel on ICE Futures Europe, with prices also ending at their lowest since April.
  
  
• Back on Nymex, August gasoline RBQ22, -0.48% fell 5.7% to $3.2646 a gallon.
  
  
• August heating oil HOQ22, 1.97% lost 2.8% to $3.6626 a gallon.
  
  
• August natural-gas futures NGQ22, 1.69% fell 4.1% to $6.163 per million British thermal units after climbing 6.5% on Monday.

Market drivers

Fears of a recession pressured stocks and commodities Tuesday, analysts said. Rising COVID-19 cases in Shanghai and the threat of further lockdowns were also seen putting pressure on crude, stirring fears of renewed lockdown.

“Recently, Chinese President Xi Jinping had firmly rejected any departure from the country’s strict zero-Covid strategy,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

“This means downside risks to oil demand in China because renewed restrictions on mobility can be expected time and again, depending on case numbers. In the West, the combination of high energy prices and rising interest rates is fueling concerns about a recession that would have a serious impact on oil demand,” he said.

A surging dollar, with the euro EURUSD, -0.02% slumping toward parity with the U.S. currency, is seen as a headwind for commodities prices in the unit, making them more expensive to users of other currencies.

On Tuesday, the Organization of the Petroleum Exporting Countries left its forecast for growth in world oil demand unchanged at 3.4 million barrels a day (mb/d) in 2022, with total demand projected to average 100.3 mb/d. In its monthly report, OPEC said world oil-demand growth is expected to slow to 2.7 mb/d next year to average 103 mb/d, “supported by a still solid economic performance in major consuming countries, as well as improved geopolitical developments and containment of COVID-19 in China.”

President Joe Biden is due to visit Saudi Arabia at the end of the week. Analysts said the Saudis might be prepared to loosen the taps somewhat, but were skeptical the visit would produce a significant shift in the supply outlook.

Read: Why Biden’s trip to the Middle East may do little to help ease tight oil supplies

Also see: Biden labeled Saudi Arabia a pariah state during the 2020 campaign. He’ll pay it a visit this week.

“International spare capacity estimates have been steadily falling in recent months as OPEC+ has badly undershot their own output targets, despite calls from the Biden administration to increase supply in order to combat high prices at the [gasoline] pump,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

The Energy Information Administration, meanwhile, released its monthly Short-Term Energy Outlook report Tuesday. It reduced its 2022 price forecasts for WTI and Brent crude, as well as natural gas.

Separately, the EIA will release its U.S. petroleum supply data on Wednesday. On average, analysts forecast an increase of 1.4 million barrels in crude supplies for the week ended July 8, according to a poll conducted by S&P Global Commodity Insights. They also forecast a weekly inventory decline of 200,000 barrels for gasoline and increase of 900,000 barrels for distillates.

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marketwatch.com 07 12 2022