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OIL FUTURES: Crude drops amid recessionary fears, tightness to remain across markets

Crude oil futures declined during mid-morning training on June 23 on the back of investors' anguish over looming recessionary fears.

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At 1216 GMT, ICE August Brent crude futures were down 19 cents/b at $111.55b, while NYMEX July WTI futures were down 31 cents/b at $105.88/b

In a testimony before the US Congress June 22, a week after the Fed [the US central bank] ordered the largest interest rate increase since 1994, Powell said the economy is strong now, but a recession is "certainly a possibility".

The current uncertainties within the market have investors looking to cut their long-term exposures to oil. Crude oil continues to rapidly decline as recessionary fears continue to dampen investor's prospects. Crude has experienced volatility as the Federal Reserve aims to combat inflationary levels, further impacting investors' sentiment.

"A recession seems unavoidable, but oil prices could still climb due to inflationary pressures," said Ron Smith, senior oil and gas analyst at BCS Global.

Despite the recessionary fears and increasing inflationary rate, demand continues to improve as the oil market remains tight. This has been outmatched as short-term demand remains strong. The ICE Brent intermonth spreads indicate that the backwardation has strengthened despite falling in flat price terms.

Meanwhile, the US President Joe Biden June 22 called on Congress to waive federal taxes on gasoline through September to ease the burden of soaring prices.

"The appeal from the tax break won't do much. The government needs to introduce policies that increase production and incentivize refining because this isn't happening at the moment," said Smith. "The market can see that no policies are being implemented to do this".

Global crude markets are expected to remain tight for the remainder of the year, industry executives said. However, a slowdown in economic growth is expected to combat this tightness.

ING analyst Warren Patterson, in a June 23 note said "A slowdown in global growth is a risk to oil demand, which could help ease some of the tightness in the market. Already, we have seen demand estimates revised lower over the course of the year. While this may help to ease some of the tightness in the short to medium term, it does little to solve the longer-term supply shortfalls."

The American Petroleum Institute reported US crude stockpiles build up of 5.61 million barrels June 22 against market analysts' estimates of a 1.43-million-barrel drawn in the week ended June 17. This was the first build up of over 5 million barrels since mid-February.

Market participants are looking toward the official US crude inventory report from the EIA due to be released late June 23, as West Texas Intermediate may come under sustained selling pressure than Brent crude if the report shows a rise in crude stocks.