Bearish Sentiment Blossoms As Oil Prices Dip To Six Week Lows

Fear of recession is the main culprit keeping the energy market grounded: File Image/Pixabay

The near-certainty of analysts that the global economy is heading towards a slowdown if not full blown recession continued to haunt crude traders on Thursday, and as a result Brent fell below $90 per barrel for the first time in six weeks.

A host of elements contributed to the bearish sentiment, including falling prices for crude cargoes in trading hubs from Houston to Singapore – compared to expectations that they would rise in reaction to the European Union's impending ban on oil imports from Russia.

The oil curve has also collapsed, and in the U.S. the market is close to morphing into a structure that signals oversupply.

Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, added that "Front month time spreads - the backbone of tight markets - are the weakest they have been since March 2021, signalling demand concerns are real and investors should be cautious when buying the dip."

Phil Flynn, senior market analyst at Price Futures Group Inc., noted, "The market is really getting caught up for the potential of serious demand destruction, and we're definitely seeing the mood shift to the downside."

Capping all of this was JPMorgan Chase & Co., which projected that the U.S. will enter a "mild" recession next year due to interest-rate hikes.

Brent on Thursday fell $3.08 to settle at $89.78 per barrel, down 3.3 percent; West Texas Intermediate slid $3.95, or 4.6 percent, to settle at $81.64 per barrel.

Edward Moya, senior market analyst at OANDA, remarked that "It looks like we aren't seeing an immediate escalation from the Russians [missile attacks] and that has tentatively removed some of the short-term supply risks."

Moya made these comments following Poland and NATO stating that a missile that crashed inside the Polish border was probably a stray fired by Ukraine's air defenses and not a Russian strike, as initially reported by mainstream media.

But Stephen Innes, managing partner at SPI Asset Management, pointed out that concerns about China's Covid policies are keeping markets grounded: "With COVID cases in China continuing to rise, especially as we move towards flu season, traders are left with little option to recalibrate positions reflecting the possibility of more lockdowns in heavily populated centers that hurt oil demand exponentially more than other areas of the economy."