Oil flat as recession fears outweigh supply cuts
Cautious remarks by the US Fed, plus poor manufacturing data from Germany, are spooking global markets
London — Oil prices were steady on Monday, with concerns of a sharp economic slowdown competing with support from tighter supply due to Opec’s production cutbacks and US sanctions on Iran and Venezuela.
Brent crude oil futures were down 7c, or 0.1%, at $66.96 a barrel at 9.55am GMT, while US West Texas Intermediate (WTI) futures were unchanged at $59.04 a barrel.
Both crude oil price benchmarks closed down on the week since briefly hitting their highest since November 2018.
Concerns about a potential US recession emerged Friday after cautious remarks by the US Federal Reserve caused 10-year treasury yields to slip below the three-month rate for the first time since 2007.
Historically, an inverted yield curve — where long-term rates fall below short-term — has signalled an upcoming recession.
Chief commodities analyst at SEB, Bjarne Schieldrop, talks to Business Day TV about the activity playing out in the oil markets.
“Oil prices are under pressure due to a combination of recession fears and gloomy market sentiment,” Commerzbank said.
“Oil market-specific reports, which point to tighter supply, are preventing prices from falling any more sharply,” the bank added, noting a decline in US crude stocks and expenditure by US shale firms.
Bullish sentiment helped drive benchmarks to last week’s highs but may soon lead to a correction.
“Speculators increased their net long in ICE Brent by 15,934 lots over the last reporting week, to leave them with a net long of 308,606 lots ... the largest position since late October,” ING said in a note.
“A large gross long is a key downside risk for the market, especially with growing concerns over the economy.”
Adding to concerns of a widespread global downturn, manufacturing output data from Germany, Europe’s biggest economy, shrank for the third straight month.
“Estimates for growth and earnings have been revised down materially across all major regions,” said US bank Morgan Stanley.
ANZ bank said the darkening economic outlook “overshadowed the supply-side issues” the oil market was facing amid supply cuts led by producer club Opec as well as the US sanctions on Venezuela and Iran.
Opec and non-affiliated allies such as Russia, together referred to as Opec+, have pledged to withhold around 1.2-million barrels a day of oil supply this year to prop up markets, with Opec’s de-facto leader, Saudi Arabia, seen to be pushing for a crude price of over $70 a barrel.