Oil futures: Markets slump 5% as economics, Covid outweigh supply fears

Quantum Commodity Intelligence - Crude oil futures Tuesday were in sharp retreat as inflationary and recessionary concerns outweighed broader supply fears, with markets giving up around half of the firm gains made during the past week.

November ICE Brent futures were trading at $98.14/b (1910 GMT), compared to Monday's settle of $102.93/b, while Oct22 ahead of expiry was at $99.44/b.

At the same time, October NYMEX WTI was trading $91.93/b versus Monday's settle of $97.01/b.

Double-digit inflation and likely further aggressive interest rate hikes reigning in oil demand growth proved a drag on markets, including reports of a sharp downturn in US consumption ahead of this week's API and EIA data releases. 

Adding to the downturn, the Associated Press reported China has placed millions of its citizens under renewed lockdown following fresh outbreaks of COVID-19, as the government persists in its hard-line policy on containing the virus.

The measures affected about half of the 6 million residents of the port city of Dalian, along with an undisclosed number in Chengde and Shijiazhuang in Hebei province, both around three hours from the capital Beijing.

Additionally various rumors were sweeping markets that an Iranian nuclear deal would be announced in September, triggering further algorithmic-led selling.

Oil markets shrugged off a number of bullish indicators, including possible OPEC+ supply cuts, the North Atlantic storm season ramping up and a rise in political tensions in Libya and Iraq were all seen as supportive of prices.

The Russian TASS news service, however, said OPEC+ is not currently discussing the possibility of oil production cuts, referencing an unnamed, presumably-Russian source.

Clashes

Clashes in Libya's capital Tripoli killed more than two dozen people over the weekend, the deadliest fighting the war-torn country has experienced in more than two years as rival political factions vie for control, which observers said could escalate and impact oil loadings once again.

Meanwhile, violent clashes also erupted in Baghdad's heavily fortified Green Zone on Monday, following an announcement by powerful Iraqi Shia cleric Muqtada al-Sadr that he was withdrawing from political life.

While there has been no immediate impact on production or loading schedules, analysts said the clashes add to broader instability and potential problems for the future, but for now prices retreated as it became clear the unrest was not harming oil output.

In the US, the National Hurricane Centre is watching several weather systems, including a disturbance in the Caribbean Sea and a tropical system in the central Atlantic, which are catching the eye of energy traders with a view to storms that have the potential to threaten facilities in the Gulf of Mexico.  

European natural gas prices pulled back sharply Monday but remain at elevated levels, and still high enough to pull additional oil volumes into the powergen sector.

TTF gas slumped by around 20% after Germany said its storage facilities were filling up faster than expected. Germany's economy minister, Robert Habeck, said the country's gas storage would be at 85% capacity next month, well ahead of its October target.

North Asian LNG spot prices retreated after the slide in Europe, while the restart of Shell's Prelude floating LNG terminal eased supply fears.