Oil hesitates, caught between recession fears and supply cuts

Around 11:35 a.m. this Thursday, Brent took 0.87% to 101.57 dollars. A barrel of West Texas Intermediate rose 0.74% to $99.26. Oil prices hovered between red and green on Thursday after two days of steep losses, still plagued by fears of a recession that could threaten demand, but also to supply declines in a tight market.

Around 09:35 GMT (11:35 CET), a barrel of Brent from the North Sea, for delivery in September, took 0.87% to 101.57 dollars.

A barrel of American West Texas Intermediate (WTI), for delivery in August, rose 0.74% to 99.26 dollars.

“Worthy or not, recession fears have been the main driver over the past three days”says Tamas Varga, of PVM Energy.

In three sessions, Brent, the benchmark for black gold in Europe, lost almost 11% and WTI fell almost 9%.

For the analyst, the “recent bloodbath in the oil market” is due to “recession fears (which) caused investors to turn away from oil”, although the trigger for this sudden change in sentiment remains a “ mystery”.

“After all, (…) there has been no significant reversal in the fundamentals” of the market, still very tense and hanging on to supply disruptions, underlines Tamas Varga.

The “fear that China will intensify restrictions to contain a Covid-19 epidemic in Shanghai” is also contributing to the downward movement in prices, note analysts at UBS.

Since Sunday, a rebound has been observed and Shanghai reported 24 additional cases on Wednesday.

Several million people are confined to China because of this epidemic rebound which raises fears of the return of restrictions, in particular in Shanghai, a month after the lifting of a long and grueling confinement.

UBS analysts expect crude oil prices to rebound.

“Many OPEC+ (Organization of the Petroleum Exporting Countries and their allies) oil producers continue to struggle to meet their production targets, and the group’s spare capacity to meet future oil disruptions. supply is running out”they argue.

A disruption in oil production from Russia could further restrict global supply, they add.

“Rough prices are expected to rise as supply growth remains below demand growth over the coming months”summarizes Mark Haefele, analyst at UBS.

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