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

·3 min read
FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub in Cushing

By Scott DiSavino

NEW YORK (Reuters) - Oil prices slid about 2% to a 12-week low in volatile trade on Wednesday, extending Tuesday's heavy losses as investors grew more worried energy demand would take a hit in a potential global recession.

Brent futures for September delivery fell $2.20, or 2.1%, to $100.57 a barrel by 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 technically oversold territory for a second straight day, on track for their lowest closes since April 11.

Trade was volatile, with both benchmarks retreating sharply from early rises of over $2 a barrel on supply concerns. Crude futures has been extremely volatile for months.

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

U.S. diesel futures also fell about 5%.

Analysts at UBS, a bank, cited "recession fears, the unwinding of the oil trade as inflation hedge, a stronger US dollar, hedge funds reacting to negative oil price momentum, producer hedging, and new mobility restriction concerns in China."

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

Investment bank Goldman Sachs also blamed this week's oil sell-off on mounting fears of a recession.

Germany's government borrowing costs fell to a five-week low as mounting economic worries drove investors into safe-haven debt.

Railway workers in France went on strike, disrupting travel days before the summer holidays begin and at a time of economic unrest as high inflation eats into salaries.

U.S. job openings fell less than expected in May, pointing to a still tight labor market that could keep Federal Reserve policy aggressive as tries to bring high inflation down to its 2% target.

Investors were waiting for minutes from the Fed's June meeting.

Oil prices were also knocked down as the soaring U.S. dollar rose to a near 20-year high against a basket of other currencies, making oil more expensive for buyers using those other currencies.

In China, the world's biggest oil importer, the market worried that new COVID-19 lockdowns could cut demand.

China's crude oil imports from Russia in May soared 55% from a year earlier to a record level. Russia displaced Saudi Arabia as top supplier as refiners cashed in on discounted supplies as Western countries sanctioned Moscow over its invasion of Ukraine.

Further pressuring oil prices, Equinor ASA said all oil and gas fields affected by a strike in Norway's petroleum sector were expected to be back in full operation within a couple of days.

A Russian court told Caspian Pipeline Consortium (CPC), which takes oil from Kazakhstan to the Black Sea, to suspend activity for 30 days. Sources said exports were still flowing.

(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)

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