More Losses For Oil As Prospect Of Stagflation Gains Impetus

Meanwhile, volatility is reportedly pushing some traders to the sidelines: File Image/Pixabay

Oil prices dipped again on Thursday, substantially less than the previous session's 17 percent tumble, but still a clear acknowledgement of news that U.S. inflation rose to a 40-year high and has sparked worries over stagflation.

West Texas Intermediate fell $2.68 to settle at $106.02 per barrel, while Brent fell $1.81 to settle at $109.33.

Ed Moya, senior market analyst at Oanda, said oil "is starting to edge lower as investors become concerned that stagflation risks could deliver a big hit to the short-term crude demand outlook.

"The latest inflation report showed everything got more expensive and the war in Ukraine will likely keep this upward trajectory in prices well into the summer, which could lead to crude demand destruction."

The latest round of losses coming on the heels of unprecedented gains due to the Russia/Ukraine war have reportedly pushed some traders to the sidelines: Bloomberg on Thursday noted that "While the higher cost of trading might discourage some traders looking to profit from the rally, others have no choice but to pay up because their operations require taking up positions in financial markets to counter their exposure in physical markets."

Scott Shelton, an energy specialist at TP ICAP Group, said, "While we are seeing a lot of margin management, traders are still trading; speculation is dropping, but people have systems to run and there is a lot going on physically that requires hedging.

"Volatility is not going away."

Moreover, the volatility is causing some shale deals to stall: according to sources, the owners of Sequitur Energy Resources are holding onto 83,000 net acres in part of the Permian Basin the company began marketing about six months ago.

The sources added that Sundance Energy, which started a sale process late last year, also saw widening valuation gaps as oil prices surged following Russia's invasion of Ukraine.

Also on Thursday, Ihsan Abdul Jabbar Ismaeel, oil minister of Iraq, joined the chorus of other officials who insist that despite geopolitical turmoil, the market does not need any extra crude production.

He said, "For now, the demand and supply is in balance….the fluctuation in price is due to geopolitical issues" instead of any real shortages.

Meanwhile, Kristalina Georgieva, managing director of the International Monetary Fund, told   media her organization will likely cut its global growth forecast to account for the economic consequences of Russia's hostilities.

In January the IMF forecast global growth of 4.4 percent for this year, compared to the 5.9 percent experienced in 2021; it's unclear by how much it will now slash its growth outlook, but Georgieva said that although downgrading is near-certain, "We still expect the world to be in positive growth territory."