Oil futures edged higher Wednesday as supply worries moved back into focus after a rout in the previous session that drove the U.S. crude benchmark below the $100-a-barrel threshold for the first time since May.
Price action
-
West Texas Intermediate crude for August delivery
CL.1,
+0.54% CLQ22,
+0.54%
rose 0.6%, to $100.09 a barrel on the New York Mercantile Exchange. -
September Brent crude
BRN00,
+1.38% BRNU22,
+1.38% ,
the global benchmark, gained $1.46, or 1.4%, to trade at $104.23 a barrel on ICE Futures Europe. -
Back on Nymex, August gasoline
RBQ22,
+0.78%
rose 0.8% to $3.3559 a gallon, while August heating oil
HOQ22,
-0.99%
fell 0.9% to $3.5688 a gallon. -
August natural gas
NGQ22,
+1.45%
rose 2.2% to $5.647 per million British thermal units.
Market drivers
Crude prices were consolidating after a brutal selloff that saw Brent fall more than 9% Tuesday and WTI slide more than 8% for their biggest one-day percentage falls since early March. The move was attributed to growing fears that aggressive monetary tightening by the Federal Reserve and other major central banks in response to persistently high inflation could send the U.S. and global economy into recession.
But analysts at Goldman Sachs argued that the selloff was overdone in light of tight crude supplies.
“The declines in prices and refining margins since mid-June are now equivalent to the oil market pricing in an 1.1% downward revision to 2H22-2023 global GDP (gross domestic product) growth expectations,” they said, in a note. “We believe this move has overshot — while risks of a future recession are growing, key to our bullish view is that the current oil deficit remains unresolved, with demand destruction through high prices the only solver left as still declining inventories approach critically low levels.”
Thin trading conditions following Monday’s U.S. Independence Day holiday may have amplified the move, they said. Analysts said technical factors were also at play, with crude futures sliding through key support levels.
“WTI materially violated the uptrend line dating back to the beginning of the year when Russia first invaded Ukraine, which prompted the surge beyond $100/barrel mark,” wrote analysts at Sevens Report Research, in a note.
WTI, however, did manage to hold above the early May closing low of $99.43, which should be viewed as a “near-term line in the sand as if it is broken, downside momentum could continue to build,” they wrote, adding that Tuesday’s trend bread hadn’t yet shifted the outlook to bearish “but it did shift our outlook from bullish to neutral on a short- to medium-term time frame with rangebound trading in the upper $90s to $115/ barrel area becoming increasingly likely.”
European natural-gas prices fell sharply on Wednesday, after a strike by Norwegian oil and gas workers that threatened to further pressure a market already under significant strain from Russia’s war in Ukraine was called off.
August natural-gas futures on the Dutch-based TTF trading hub fell 6% to 154.78 euros per megawatt-hour. The ICE U.K. natural-gas contract GWM00, -9.39% fell more than 9% to 263.15 pence per therm, compared with just over 90 pence per therm a year ago.
