New losses brought oil into a bear market

Despite the bullish reaction in the morning, oil quickly erased its gains and finally extended the losses of yesterday’s wild sell off, as the assessment of an impending recession that could destroy demand for energy products seems to be taking hold.

In particular, after the plunge of more than 8% yesterday, the American WTI for August delivery finished today’s trading with new losses of 1% or 97 cents with its price at 98.54 dollars per barrel.

Thus, being more than 20% away from the local high of $123.7 on March 8, it technically entered bear market territory.

Similarly, global benchmark Brent saw its own contract for September delivery close down 2%, or $2.08, to settle at $100.69 a barrel.

It is worth noting that during the day it went as low as $98.5 a barrel, losing $100 for the first time since April.

Despite the fact that the supply of crude oil remains extremely limited and far from the needs of demand, recessionary fears seem to dominate the market at the moment, as pointed out by Goldman Sachs in its note.

At the same time, the dollar has strengthened to a 20-year high against the euro and multi-year highs against other major currencies, meaning it makes oil more expensive for holders of other currencies, curbing demand.

Adding to the downward pressure on oil was the end of the strike by Norwegian mining workers, with the country expected to return to full production levels within days.

In any case, however, the majority of analysts continue to believe that the recent dip in prices will be temporary as the lack of supply remains, which the prices of longer-term contracts seem to confirm.

In particular, six-month Brent contracts were trading significantly lower than the current (backwardation) by around $15, little changed since yesterday.

Something that is not often seen, especially in commodities, where storage costs mean more costs for long-term contracts than the current and spot price.

“Yesterday’s move, with the two contracts trading nearly $15 apart, suggests more panic and forced liquidations than any structural change in the tight global supply-demand situation,” said Jeffrey Halley, senior market analyst at OANDA.