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Futures Movers: Oil prices fall to their lowest finish since April

Oil futures declined on Thursday, extending a drop below $100 a barrel to settle at their lowest level since April, with worries about a recession leading prices to give up much of the gains seen in the months since Russia’s invasion of Ukraine in February.

Price action

West Texas Intermediate crude for August delivery
CL.1,
+0.05%

CL00,
+0.05%

CLQ22,
+0.05%

fell 52 cents, or 0.5%, to $95.78 a barrel on the New York Mercantile Exchange after trading as low as $90.56.

September Brent crude
BRN00,
+0.63%

BRNU22,
+0.63%
,
the global benchmark, lost 47 cents, or 0.5%, to $99.10 a barrel on ICE Futures Europe. Front-month prices for both Brent and WTI settled at their lowest since April, according to Dow Jones Market Data.

Back on Nymex, August gasoline
RBQ22,
-1.58%

dropped nearly 1.5% to $3.1868 a gallon, while August heating oil
HOQ22,
+0.16%

shed nearly 0.5% to $3.6494 a gallon.

August natural gas
NGQ22,
-0.39%

fell 1.3% to $6.60 per million British thermal units.

Market drivers

“Concerns about faltering demand are beginning to overtake supply worries linked to the Russia-Ukraine war and that is putting pressure on energy futures markets this week,” said Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Week to date, WTI crude prices have dropped nearly 9%, while Brent has fallen by more than 7%.

Crude-oil futures are “selling off as the realization that the U.S. is likely already in a recession sets in,” said Troy Vincent, senior market analyst at DTN. “Speculative money flows out of oil and commodities — the last bastions of hope for investors looking to hedge losses in bonds and equities — is a clear reflection of the deteriorating outlook for economic growth prospects.”

Based on most actively traded contracts, WTI had traded as high as $130.50 a barrel intraday on March 7, while Brent rose as far as $139.13. WTI ended at $92.10 on Feb. 23, the eve of Russia’s invasion of Ukraine, while Brent had closed at $94.05.

Much of weakness for oil “continues to come from broader economic anxiety, headlined most recently by U.S. data for June which showed inflation at 9.1% over the past year” — the highest U.S. inflation figure in four decades, said Robbie Fraser, manager, global research & analytics at Schneider Electric, in a Thursday note.

Read: U.S. inflation climbs to new 41-year high of 9.1%, CPI shows, as gas prices surge

This will “make a strong case for the U.S. Federal Reserve to press ahead and possibly accelerate efforts to raise rates,” Fraser said. “The risk to that approach is overshooting in a way that slows economic activity and encourages tipping into recessionary conditions.”

Also, the expectations of aggressive rate hikes from the Fed are typically supportive for the dollar relative to other currencies, and that’s “bearish” for dollar-denominated commodities like crude, said Fraser.

President Joe Biden this week is scheduled to visit Saudi Arabia, a move that’s seen as aimed at persuading the kingdom to loosen its taps, though analysts have questioned the scope of a Saudi response.

Opinion: Is Biden making a mistake by going to Saudi Arabia?

“It is hard to ignore recent concerns over oil fundamentals, both from the possible higher supply from [United Arab Emirates] and Saudi Arabia against the backdrop of weaker global demand that may very well open the door for test sub-Brent $85 if the Kingdom heeds Biden’s pleas,” said Stephen Innes, managing partner at SPI Asset Management, in a note. “At the same time, low liquidity and technical factor may compound the move.

“As the demand destruction narrative builds against the backdrop of incoming supply, it will undoubtedly put the oil market invincible bullish thesis to the stress test,” Innes said.

In One Chart: Oil selloff puts crude near ‘inflection point’ as investors weigh inflation outlook

Meanwhile, natural-gas futures followed oil prices lower, even as the U.S. Energy Information Administration reported on Thursday a slightly smaller-than-expected 58 billion cubic foot climb in domestic supplies for the week ended July 8. On average, analysts polled by S&P Global Commodity Insights forecast an increase of 61 billion cubic feet.

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