Oil futures: Brent slumps 5% as weak European data adds to recession fears

23 Sep 2022

Quantum Commodity Intelligence - Crude futures Friday were in sharp retreat as oil markets headed for a fourth straight week of losses, with stumbling economic growth again seen hitting oil demand.

Front-month November ICE Brent futures were trading at $85.60/b (1745 GMT), compared to Thursday's settle of $90.46/b.  

At the same time, Nov22 NYMEX WTI was trading at $78.43/b versus Thursday's settle of $83.49/b, bouncing around 9-month lows not seen since the start of the year. 

Crude markets have struggled to recover from the midweek price slide after the US Federal Reserve increased rates by 0.75 points and flagged further hikes lasting into 2023, hampering economic growth.

"Overall sentiment in the market remains negative following the US Federal Reserve rate hike and expectations that the Fed will be more aggressive in terms of tightening over the remainder of the year," said Warren Patterson, head of ING's commodity research.

ING also said in a market note that the third decline in a row for the eurozone PMI indicates that business activity has been contracting throughout the quarter, suggesting the region may already be in recession

"The third quarter clearly marks a turning point in the eurozone economy. After a strong rebound from contractions caused by the pandemic, the economy is now becoming more severely affected by high inflation both at the consumer and producer level," said ING.

Germany saw its composite PMI drop to 45.9 in September, the eurozone saw its composite PMI fall to 48.2. Both services and manufacturing output are well below 50 at 48.9 and 46.2, respectively, signalling broad-based contracting business activity.


The Dollar Index surged to fresh 20-year highs Friday of around 112.80 points, further dampening sentiment across the commodities sector. 

"This is the market saying, 'If we are going into recession, we're going into the dollar and selling everything else.' Oil is getting caught up in this," commented Michael Tran of RBC Capital Markets.

Supply concerns have lent some price support at the back end of the week, particularly as the EU embargo and price cap on Russian crude approaches, while the Kremlin's mobilisation of reservist troops likely means no diplomatic solution to the Ukraine crisis in the short term.

Goldman Sachs this week reiterated its bullish outlook for oil, with Jeff Currie, head of commodities, saying Russian oil exports were set to tumble over winter.

He also noted the SPR release programme is ending, the US rig count largely flatlining, and any Iranian deal is looking increasingly unlikely as further bullish factors.

A US State Department official said Thursday that efforts to revive the 2015 Iran nuclear deal had hit a wall, while EU officials have warned the window for securing a nuclear deal is about to close.

Elsewhere, models tracking the Caribbean weather system designated 98L have largely shifted eastwards, with most forecasts predicting a Florida landfall, keeping the likely storm well away from the oil and gas facilities of Louisiana.