Crude oil futures shed overnight gains as recession concerns weigh

Crude oil futures were lower in mid-morning trade in Asia June 17, tracking a bearish session on Wall Street overnight as recession concerns continued to grow amid monetary policy tightening by central banks worldwide.

At 10:10 am Singapore time (0210 GMT), the ICE August Brent futures contract was down 57 cents/b (0.48%) from the previous close at $119.24/b, while the NYMEX July light sweet crude contract was down 67 cents/b (0.57%) at $116.92/b.

Concerns about a global recession continued to mount as central banks worldwide move to tighten monetary policy to tackle soaring inflation.

Following the US Federal Reserve's historic 75 basis points hike in its target fed funds rate on June 15, the Swiss National Bank and the Bank of England also moved to hike interest rates June 16, sending Wall Street indices plunging overnight.

"[The Swiss National Bank's] first rate hike in 15 years of 50 basis points added to global tightening jitters as it highlighted the resolve from global central banks to react aggressively to inflationary pressures, reviving concerns of recession risks in the process as well," said IG market strategist Yeap Jun Rong in a June 17 note.

"The overall downbeat mood in Wall Street yesterday was being carried into the Asian session, from which the latter is expected to remain under pressure in the absence of any positive catalysts for now," Yeap added.

Nonetheless, analysts expect the recent downward pressure on oil prices to be short-lived. Oil supply remained tight as demand continued to recover, while a similar tightness in refined product inventories worldwide remained a concern, they said.

"'Buy the dip' might be dead for the stock market, but it probably should still work for energy traders," said OANDA senior market analyst Edward Moya. "Despite all the fears of aggressive central bank tightening of monetary policy and the slower economic growth that will ensue, the oil market remains very tight."

Russian Deputy Prime Minister Alexander Novak said June 16 that oil prices could be significantly higher by the end of year, and that Russia plans to further increase oil and gas deliveries eastward.

"In principle, I don't rule out that oil prices may be $150/b by the end of the year, maybe even higher. Everything depends on logistics," Novak said during the St. Petersburg International Economic Forum, according to Prime news agency.

Dubai crude swaps were higher in mid-morning trade in Asia June 17 from the previous close, though intermonth spreads were mixed.

The August Dubai swap was pegged at $108.01/b at 10 am Singapore time (0200 GMT), up 71 cents/b (0.66%) from the June 16 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $3.53/b at 10 am, down 14 cents/b over the same period, and the August-September intermonth spread was pegged at $2.60/b, up 4 cents/b.

The August Brent/Dubai EFS was pegged at $11.38/b, down 38 cents/b.