Oil futures: Prices lower amid choppy trading as supply crunch/recession fears collide

23 Jun 2022

Quantum Commodity Intelligence – Crude oil futures Thursday initially came under further downwards pressure as recessionary fears continued to outweigh a potential supply crunch, although prices staged a partial rebound during European trading hours before easing again heading towards the US close.

Front-month August ICE Brent futures were trading at $110.67/barrel (1755 GMT), up from the intraday low of $108.04/b although down from Wednesday’s settle of $111.74/b.

At the same time August NYMEX WTI was trading $104.92/b, versus Wednesday’s settle of $106.19/b.

“Growing fears over a recession have weighed on risk assets, and comments from Jerome Powell during his congressional testimony would not have helped," said Warren Patterson, head of ING's commodity research.

Fed Chair Powell’s testimony to Congress flagged concerns that further rate hikes would stall an economic recovery and dampen oil demand.

However, ING’s Pattison said the issue for oil markets is on the supply side: “Russian supply disruptions and limited OPEC spare capacity should continue to offer support to the market.”

President Joe Biden called on Congress Wednesday to temporarily suspend the federal gas tax, in an attempt to quell the rapid surge in prices at the pump.

Although analyst said that a suspension could provide some immediate relief, it could also give a boost to demand over the peak summer season, exacerbating tight supplies.

Biden also called on the refining industry to produce more gasoline but with gasoline cracks at record levels across the globe, industry watchers said processing rates have already been ramped up to maximum levels.

Industry executives were due to meet the President and Energy Secretary Granholm later Thursday for showdown talks. 

The American Petroleum Institute (API) reported late Wednesday that US crude inventories increased by 5.607 million barrels last week. Gasoline stocks were up by 1.216 million barrels, while distillate inventories dropped by 1,656 million barrels.

EIA inventory data was due Thursday, but has been delayed due to “system issues”. In a statement the government agency said:

“Several US Energy Information Administration (EIA) product releases scheduled for the week of June 20, 2022, will be delayed as a result of systems issues. Our experts are working on a solution to restore the affected systems.”