Oil drops 2% to 12-week low on global recession fears

Crude oil storage tanks are seen from above at the Cushing Oil Hub in Cushing, Oklahoma March 24, 2016. REUTERS/Nick Oxford/File Photo

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  • Recession fears continue to weigh on prices
  • Dollar holds nearly 20-year high against other currencies
  • China reports new cases of COVID-19 across the country
  • Norwegian oil production to return days after strike
  • Russian court orders shutdown of Caspian pipeline

NEW YORK, July 6 (Reuters) – Oil prices fell around 2% on Wednesday to a 12-week low in volatile trade, extending Tuesday’s heavy losses as investors grew fears that the demand for energy from being affected by a possible global recession.

Brent crude futures for September delivery fell $2.20, or 2.1%, to $100.57 a barrel at 1:27 p.m. EDT (1727 GMT). U.S. West Texas Intermediate (WTI) crude fell $1.54, or 1.6%, to $97.96. Both benchmarks were in technical oversold territory for a second straight day, on track for their lowest closes since April 11.

The trade was volatile, with both benchmarks falling sharply after initial rises above $2 a barrel due to supply issues. Crude futures have been extremely volatile for months.

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On Tuesday, Brent slipped 9% and WTI 8%. Brent’s $10.73 drop was the third largest for the contract since it began trading in 1988. The biggest drop was $16.84 in March.

US diesel futures also fell around 5%.

Analysts at UBS, a bank, cited “recession fears, the unwinding of oil trading as an inflation hedge, a stronger US dollar, hedge funds reacting to negative oil price dynamics, coverage of producers and new concerns about restricting mobility in China”.

With the US Federal Reserve expected to continue raising interest rates, open interest in futures on the New York Mercantile Exchange fell last week to its lowest level since May 2016 as investors cut their risky assets like commodities.

Investment bank Goldman Sachs also blamed this week’s oil selloff on growing fears of a recession.

German government borrowing costs fell to their lowest level in five weeks as growing economic concerns pushed investors to take on debt for safekeeping.

Railway workers in France have gone on strike, disrupting travel days ahead of the start of summer holidays and at a time of economic turmoil as high inflation eats away at wages. Read more

U.S. job vacancies fell less than expected in May, indicating a still-tight labor market that could keep Federal Reserve policy aggressive as it tries to bring high inflation back to its target of 2 %. Read more

Investors were waiting for the minutes of the Fed’s June meeting. Read more

Oil prices also tumbled as the soaring US dollar hit a nearly 20-year high against a basket of other currencies, making oil more expensive for buyers using those other currencies.

In China, the world’s largest oil importer, the market feared further COVID-19 lockdowns would reduce demand. Read more

China’s crude oil imports from Russia in May soared 55% from a year earlier to a record high. Russia has supplanted Saudi Arabia as the main supplier, as refiners took advantage of cut-price supplies as Western countries sanctioned Moscow for its invasion of Ukraine. Read more

Putting further pressure on oil prices, Equinor ASA (EQNR.OL) said all oil and gas fields affected by a strike in the Norwegian oil sector are expected to be operational again within days. Read more

A Russian court has ordered the Caspian Pipeline Consortium (CPC), which transports oil from Kazakhstan to the Black Sea, to suspend operations for 30 days. Sources said exports continued to sink. Read more

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Additional reporting by Rowena Edwards in London, Emily Chow in Kuala Lumpur and Arathy Somasekhar in Houston; Editing by David Clarke, David Goodman, Deepa Babington and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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