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Below $100 oil after two months

LAST UPDATE 22.30

Heavy losses sent prices below $100 after a while, as growing worries about the risk of an impending recession offset fears of tight supply.

Specifically, Brent for September delivery ended trading with losses of $10.73 or 9.5% and saw its price drop to 102.7 dollars the barrel, at its lowest level since May 10.

Similarly, US WTI crude for August delivery plunged 8.2% or $8.9 closing at $98.02 per barrel recording a low since April 25, while it had been found retreating as low as 97.43.

“Oil continues to struggle to escape the current ‘recessionary malaise’ as the market moves from inflation to economic despair,” SPI Asset Management’s Stephen Innes said in a note.

It is also noted that both oil contracts ended June lower, breaking a six-month bullish streak as fears of an impending recession.

In the same vein, Citi said in a note today that Brent could see its price sink as low as $65 a barrel by the end of the year if the US economy slips into recession.

“In a recessionary scenario with rising unemployment, household and business bankruptcies, commodities will follow the downward cost curve which will deflate and profit margins will move into negative territory leading to supply cuts,” the bank’s analysts pointed out.

It is worth noting that Citi’s pessimistic assessment is one of the few for the oil market, when other investment firms such as Goldman have set the price forecast at $140, while JPMorgan made a nightmare estimate of up to $380 a barrel.

Crude prices have soared since Russia invaded Ukraine, raising concerns of global shortages given Moscow’s role as a key supplier of the commodity, especially to Europe.

WTI surged as high as $130.5 a barrel in March, while Brent touched $140, the highest level of any contract since 2008.

Tellingly, today’s plunge came despite the start of a strike by mining rig workers demanding higher wages, which is expected to further squeeze already tight supply.

Despite the strong losses, however, some experts argue that oil prices are likely to remain at high levels.

“Recessions don’t have a good track record of killing demand. Inventories are at critically low levels, which also suggests that their build-up will keep oil demand strong,” Bart Melek, chief commodity strategist at TD Securities.

The note adds that little progress has been made in resolving structural supply-side issues in the market, meaning that even if demand eases oil prices will continue to receive support.

Goldman Sachs head of global commodities research Jeffrey Curry echoed that, telling CNBC that “financial markets are trying to price in a recession. The physical markets are telling you something really different.”

And when it comes to oil, Curry thinks it’s the tightest market it’s ever been. “We are extremely low in inventories on either side,” he said, noting that Goldman has a $140 target price for Brent.

Source: Capital

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