Oil futures: Brent plummets 5% to 7-month low as slowdown fears bite

Quantum Commodity Intelligence – Crude oil futures Wednesday tumbled to seven-month lows as recessionary fears returned as the primary driver of market sentiment, while rolling lockdowns across China further dampened the outlook for oil.  

Front-month November ICE Brent futures were trading at an seven-month low $88.30/barrel (1930 GMT), compared to the day's range of $87.70-$93.80/b and Tuesday's settle of $92.83/b.  

At the same time October NYMEX WTI was trading $82.38/b, versus Tuesday's settle of $86.98/b.

"Fading the OPEC+ production cut bounce wasn't that hard to do given a laundry list of global economic challenges… the short-term crude demand outlook appears to be poised for another wave of China Covid-related lockdowns," said Ed Moya, senior market analyst at brokerage Oanda.

China's Covid lockdown situation is deteriorating, according to Nomura, which noted nearly 300 million people are now affected by restrictions imposed across approximately 50 cities.

The financial services group said in a note it is cutting its growth forecast for the third quarter by 0.3% points to 2.6% over the previous year because China, "is battling the broadest wave of Covid infections thus far".

Markets briefly rebounded as Russia reiterated threats to halt oil supplies to countries applying a price cap, as President Putin blasted Europe's idea for a price cap on Russian gas as "stupid," adding it would lead to global price rises.

Rates

Traders were looking towards Thursday's ECB rate decision, while the US Federal Reserve meeting will take place 21 Sept, both expected to announce further hikes and likely curtail growth.

"We expect crude oil to fall in the medium term given concerns of tightening monetary policy, Covid-19 curbs in parts of China and global economic growth slowdown can all dent oil demand going forward," said Sumit Pokharna, Vice President, Kotak Securities, interviewed on CNBC India.

Any rebound from Monday's OPEC+ meeting appears to have been short-lived, although Saudi Energy Minister Prince Abdulaziz was quoted as saying that the producer group's decision to cut 100,000 bpd in October "shows that we will be attentive, preemptive and pro-active" when it comes to market stability and efficiency.

Analysts noted that the OPEC+ communique gives the group Chairman, currently Prince Abdulaziz, the power to intervene whenever necessary to stabilize oil markets through calling for a meeting at any time.

Inventory data from the American Petroleum Institute will be published later Wednesday while the Energy Information Administration will publish its own report Thursday, both delayed 24 hours due to the US holiday on Monday.