Oil Drops On Recession Fears As Israel Braces For All-Out Iranian Attack

Meanwhile, the Saudis up Arab Light prices on strong Asian demand: File Image/Pixabay

Even though Israel on Monday was bracing for an all-out attack by Iran, fear of a U.S. recession eclipsed all other considerations and caused West Texas Intermediate to dip to a six month low.

The selloff was triggered in part by earlier news from the U.S. Labor Department of a fourth straight monthly increase in the unemployment rate, from 4.1 percent in June to 4.3 percent, an increase analysts believed practically guarantees a Federal Reserve interest rate cut in September.

This was followed on Monday by traders fleeing risk assets as a stock market meltdown worsened, although U.S. equity markets moved away from their lows as the trading session progressed

WTI settled down 58 cents to $72.94 per barrel, the lowest settlement since February 5; Brent settled down 51 cents to $76.30 per barrel.

Geopolitical tensions were said to have caused a floor for crude prices, and Helima Croft, head of global commodity strategy at RBC Capital Markets, said that with regard to hostilities up until now being limited and therefore not disrupting supply, “the question is now are we looking at something more coordinated with Hezbollah, Iran, Hamas.”

ING wrote on Monday that, “While developments may lead to short-term volatility in the market, to see sustained strength, we would likely need to see some actual disruption to oil supply, which has been lacking so far.”

For its part, Bloomberg stated that Monday's selloff "may have run its course as technical signals including the relative strength index show prices are at oversold levels.”

Still, the broad analytical consensus is that unless the U.S. Fed cuts interest rates soon (the call is for  50 basis points), economic growth will further suffer and significantly impact oil and gas demand.

In other oil news on Monday, Saudi Arabia raised its selling price for Arab Light to Asia by $0.20/bbl to US$2/bbl for September loadings, following two weeks of price cuts; some pundits believed this suggests that state-owned Saudi Aramco has identified stronger demand in Asia other than beleaguered China.