Crude trades below $100/bbl on global recession fears
SINGAPORE (ICIS)–Oil prices were extending losses on Thursday, with both key benchmarks trading below the psychological $100/bbl mark, amid growing concerns that the global economy will again plunge into a recession.
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Recession fears had sent crude futures tumbling on Wednesday, outweighing concerns over tight global supply.
A strong US dollar, which surged to a 20-year high, was also exerting heavy downward pressure on the market as the appreciation makes oil more expensive for holders of other currencies.
International Monetary Fund (IMF) managing director Kristalina Georgieva, in an interview with newswire agency Reuters on 6 July, said that the outlook for the global economy had “darkened significantly” since April and she could not rule out a possible global recession next year given the elevated risks.
In the coming weeks, the IMF – the global financial stability watchdog – is expected downgrade its 2022 growth forecast of 3.6% published earlier in April, she said.
In 2021, the global economy expanded by 6.1%, according to IMF data.
Global economies are dealing with inflation at multi-year highs as commodities prices surged following Russia’s invasion of Ukraine in late February.
The war in Ukraine will shave $1tr from the global economy in 2022, research and analysis firm Economist Intelligence Unit (EIU) said in a report on Thursday.
“The war in Ukraine is affecting the global economy via higher commodity prices, supply-chain disruptions and worsening sentiment for both households and businesses,” it stated.
“These three factors are causing global inflation to spike and growth to slow,” the EIU said, adding that the situation is expected to continue over the rest of the year.
The EIU forecasts global growth to slow down to 2.8% this year, sharply lower than its pre-war forecast of 3.9%.
TIGHT SUPPLY CAPS CRUDE
“Fundamentally, little has changed,” Dutch banking and financial information services provider ING said in a note on Thursday, adding that “any further downside in the market to be fairly limited”.
“The oil market remains tight and given the expectation that Russian oil supply will decline as we move through the year, the market is set to remain tight,” it added.
Adding to supply concerns was the US imposition fresh sanctions an “international network of individuals and entities” that the Department of Treasury said facilitated the delivery and sale of Iranian petroleum and petrochemical products from Iranian companies to east Asia.
Iran is among the world’s biggest crude exporter and is a member of the oil cartel OPEC.
“While the United States is committed to achieving an agreement with Iran that seeks a mutual return to compliance with the Joint Comprehensive Plan of Action, we will continue to use all our authorities to enforce sanctions on the sale of Iranian petroleum and petrochemicals,” said Brian Nelson, US treasury undersecretary for terrorism and financial intelligence.
Several rounds of talks in Vienna, starting in April last year, has failed to secure a return to Iran’s 2015 nuclear deal with world powers.
Focus article by Nurluqman Suratman
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