European and US crude oil futures prices fell sharply on Tuesday, which market analysts suggested was long overdue because of spreading concerns over the health of global economy.
Front-month September Brent futures plunged more than 10% to trade below $102 per barrel on the London-based ICE Exchange.
West Texas Intermediate (WTI) oil futures also plummeted by around 11%, falling below the $100-per-barrel barrier to nearly $98.
Prices recovered somewhat on Wednesday as concerns about supply returned to the fore, according to Reuters, with Brent crude futures rising by $1.62, or 1.58%, to $104.39 per and WTI crude climbing $1.04, or 1.05%, to $100.54 per barrel.
The Brent futures market in London has shown strong signs of what is known as backwardation, with contracts expiring in December this year and in January 2023 moving down by the same margin to trade well below prices for the front-month contract.
Backwardation suggests that the market expects some short-term tightness in supply that is set to disappear as times passes, as more oil becomes available to the global market from energy producers. It also discourages producers and traders from storing oil.
Concerns about a possible global recession curtailing energy demand have started to outweigh fears of supply disruption, caused by a partial European embargo on Russian oil imports to the continent.
Despite the partial embargo, Russian oil exports have not declined as predicted, and instead grew in March, April and May.
Persistent high prices for Brent and WTI have permitted Russia’s producers to accept steep double-digit discounts on their barrels to compensate buyers for increased transportation and cargo-insurance costs to alternative destinations in Asia, such as India and China.
In the euro zone, the latest data show business growth across the bloc slowed further in June, with forward-looking indicators suggesting the region could slip into decline this quarter as the cost-of-living crisis keeps consumers wary, according to Reuters.
Such concerns have triggered another decline in the euro rate against the US dollar, which has firmed against other major currencies.
On Tuesday, the euro slipped below $1.03, the rate last seen about 20 years ago.
A stronger dollar traditionally pushes the price of oil down as most barrels are traded across the world in the US currency.
Meanwhile, in South Korea, inflation hit a near 24-year high in June, adding to concerns about slowing economic growth and oil demand in Asia.
Fears of a global recession and subsequent decline in oil demand exerted a powerful influence on market players Tuesday, despite the potential of a major oil supply disruption in Europe, which could be a short-term event.
A strike that began Tuesday at Norwegian North Sea offshore installations may ramp up further on Saturday.
The Norwegian Oil & Gas Association (Norog), a professional body and employers’ association, said the scope of the latest notice to strike by the Norwegian Organisation of Managers & Executives — a trade union that has refused to accept a pay settlement already signed by two other unions — will have damaging and serious consequences for both Europe and Norway.
According to Norog, these promised stoppages could curb oil production in the Norwegian North Sea by as much as 341,000 barrels per day.
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