Crude oil futures fall as risk-off sentiment sweeps market

0250 GMT: Crude oil futures fell further during mid-morning trade in Asia June 18, extending overnight losses, as risk aversion gripped the market after hawkish signals from the US Federal Reserve, even as the global demand recovery narrative remained intact.

At 10:50 am Singapore time (0250 GMT), the ICE August Brent futures contract was down 64 cents/b (0.88%) from the previous settle at $72.44/b, while the NYMEX July light sweet crude contract was 56 cents/b (0.79%) lower at $70.48/b.

The Brent and the NYMEX light sweet crude markers had fallen 1.76% and 1.54% overnight to close at $73.08/b and $71.04/b respectively, halting the recent dizzying rally.

Vandana Hari, CEO of Vanda Insights, told S&P Global Platts on June 18 that the downturn in prices comes as the market consolidates after recent gains, and was triggered by a hawkish tilt in the US Federal Reserve's dot plots from a meeting concluded June 16.

The dot plots show that Federal Reserve officials are leaning towards two interest rate increases by the end of 2023 based on median estimates. The prospect of higher rates has fueled risk-off sentiment in broader financial markets.

"Risk aversion that has set in the broader financial markets following the hawkish message from the Federal Reserve has rippled through a range of commodities and crude is no exception," Hari said.

Some analysts said oil prices also faced headwinds from concerns over the deteriorating pandemic situation in the UK, which reported 11,007 new COVID-19 infections June 17, the highest since Feb. 19, government data showed. That surge despite high vaccination rates has called into question the nascent recovery on the pandemic front in the rest of the western hemisphere, analysts said.

However, Hari said that the global demand recovery narrative remains intact despite the surge in UK cases.

"Nothing has changed with regards to the fundamentals. The market had already braced itself for a deterioration in the pandemic situation in the UK when Boris Johnson had earlier announced that England's lockdown will be extended by 4 weeks," she said.