OIL FUTURES: Brent holds above $100/b as recession concerns trigger renewed selling pressure

Oil futures finished a volatile session lower July 6 as recession concerns prompted a second day of strong selling pressure that sent front-month ICE Brent below $100/b intraday for the first time since April 25.

NYMEX August WTI settled down 97 cents at $98.53/b, and ICE September Brent declined $2.08 to finish at $100.69/b.

Crude prices saw a second day of intense selling pressure as recession fears fueled demand concerns that continued to overshadow tight global supply outlooks, analysts said.

"There is no doubt the oil market is sensing some demand destruction at recently elevated price levels," Price Futures Group analyst Phil Flynn said in a note.

According to data from GasBuddy, which compiles real-time consumer data at over 150,000 US gas stations, July 4 US gasoline demand was 10.5% below that of the week earlier, and 9.2% below that of the average of the last four Mondays.

Recent economic data paints a picture of a slowing US economy. The June ISM services index declined 0.6 percentage point from May, exceeding market expectations of a nearly two-point decline, but still indicated the rate of growth in the US service sector at a two-year low. Meanwhile, US Labor Department data released July 6 showed May job openings beating market expectations, but still falling by almost 500,000 to 11.25 million.

Front-month Brent and WTI settled down, respectively, 15% and 12% from their most recent peak June 28. However, forward structures for both contracts remain relatively unaffected by the steep price declines. While the front-month ICE Brent contract has plunged over $17/b over the past six sessions, the backwardation between front and year-ahead contracts has narrowed just over $4/b over the same period.

Front-month WTI has fallen $13.23/b in its five trading sessions since June 28, but the year-ahead backwardation has narrowed just $1.04/b in that time.

NYMEX August RBOB declined 9.24 cents to settle at $3.2366/gal, while August ULSD fell 19.10 cents to $3.4106/gal.

The overseas demand outlook has also come under increased pressure amid a fresh round of pandemic-induced lockdowns in China. Authorities imposed a seven-day lockdown in Xian from July 6. The latest round of measures follows curbs enacted July 2 in several eastern cities like Wuxi, a manufacturing hub in Jiangsu province, and Si County in Anhui province, after the emergence of fresh clusters.

"Chinese authorities will try, initially, a district-by-district approach to restrictions. But nobody should be under any illusion that they won't go harder and faster if needed," Jeffrey Halley, OANDA's senior market analyst, said in a July 6 note, adding that China's zero-COVID strategy remains a key risk factor.

In Europe, the Euro fell to a 20-year low against the US dollar July 5 on the back of rising oil and gas prices and concerns that Russia could cut off supplies completely, market analysts said.

"Beyond the market's worries about slower global growth in recent months, what is unfolding in Europe in recent weeks is a new big negative economic shock," said SPI Asset Management Managing Partner, Stephen Innes, in a July 6 note, adding that a recession in Europe could "send a recessionary tsunami around the world."

Market analysts observed that investors will take the opportunity to liquidate their positions even if there is no clear supply and demand catalyst in the oil complex to trigger a sell-off.

"This current oil market malaise is as much about risk aversion as anything else," Innes said.