Oil futures traded lower Tuesday, under pressure as concerns over the global economic outlook spurred uncertainty about the demand outlook for crude and as the U.S. dollar surged versus other currencies.
Price action
-
West Texas Intermediate crude for August delivery
CLCLQ22
fell 9 cents, or 0.1%, to $108.34 a barrel on the New York Mercantile Exchange. U.S. markets were closed Monday for the Independence Day holiday. -
September Brent crude
BRN00BRNU22,
the global benchmark, dropped $1.42, or 1.3%, to $112.08 a barrel on ICE Futures Europe after rising 1.7% on Monday. -
Back on Nymex, August gasoline
RBQ22
rose 0.5% to $3.705 a gallon, while August heating oil
HOQ22
fell 0.4% to $3.923 a gallon. -
August natural gas
NGQ22
edged down 0.3% to $5.712 per million British thermal units.
Market drivers
The U.S. dollar surged versus major rivals, with the euro
EURUSD
slumping to a 19-month low versus the greenback on fears the energy crunch created by the Russia-Ukraine war and plans for monetary tightening by the European Central Bank in response to inflation could send the eurozone into recession.
A strong dollar itself can also be a headwind for crude and other commodities priced in the unit, making them more expensive to users of other currencies.
Fears of a U.S. recession have also been on the rise as the Federal Reserve moves to aggressively raise interest rates and otherwise tighten monetary policy in response to inflation.
But analysts argued that downside for crude is likely to remain limited by tight supplies.
“While there are demand concerns given the gloomier macro outlook, the market is still expected to be tight for the remainder of the year,” said Warren Patterson, head of commodities strategy at ING, in a note. “OPEC+ producers have limited room to increase output significantly, and so are unable to provide much relief to the market.”
Meanwhile, oil and gas workers in Norway went on strike Tuesday over pay, news reports said. Norwegian oil output could be cut by 15% by Saturday, according to Reuters.
Meanwhile European gas prices rose, with Dutch futures rallying Monday to their highest since March, Patterson noted. “Obviously, this is not great for the EU, given the region is already having to deal with reduced pipeline flows from Russia,” he said.
