Oil futures: Brent prices slump as economic slowdown fears bite

17 Jun 2022

Quantum Commodity Intelligence - Crude oil futures Friday were in sharp retreat with markets failing to hold firm gains made during the previous session's rebound, as this week's tightening monetary policy again raised concerns over the health of the global economy.

Front-month August ICE Brent futures were trading at $112.56/barrel (1820 GMT), compared to Thursday's settle of $119.81/b and down over $8/b from Friday's intraday high of $121.25/b.

At the same time, July NYMEX WTI was trading $108.77/b versus Thursday's settle of $117.59/b, while the more-liquid Aug22 contract was trading at $107.10/b.

Brent was around 9.5% lower on the week, while WTI was down by more than 11% since last Friday.

Financial markets were hit midweek by a US interest rate hike of 75 basis points, which added to the gloomier economic outlook, and while oil markets appeared to have weathered the storm, oil futures were hit by a wave of selling during European and US trading hours Friday. 

The US Fed hikes were followed by interest rate rises in the UK and Switzerland, while the European Central Bank says it will raise interest rates for the first time in 11 years in July. 

Prices were higher earlier in the session Friday with the tight supply/demand balance lending support, as demand growth is expected to improve during the second half of the year.  

"Average global demand goes up between 1H and 2H of year. We had Chinese lockdowns in the weaker period of the year, and despite that we have very tight physical markets for both refined products and crude," said hedge-fund manager Pierre Andurand, noting record crack values for gasoil and gasoline.

Prices were earlier boosted after the US imposed sanctions on several front firms involved in exporting petrochemicals from Iran.

Although there is no direct impact on crude, the announcement was seen further driving a wedge between the US and Iran ahead of US President Joe Biden's visit to the Middle East next month.

"The market has been watching negotiations between the West and Iran in anticipation of revival of the nuclear deal in recent months. This brought back into focus the ongoing supply side issues in the market," said ANZ commodity strategist Daniel Hynes.

Talks to restore the 2015 Iran nuclear deal largely ground to a halt in April, with the US and Iran unable to resolve a row over the status of the Islamic Revolutionary Guard Corps, which the US has listed as a terrorist organisation.