Brent, U.S. crude both slump below $100/bbl on recession fears
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Crude oil futures extended their losses on Wednesday following yesterday's brutal selloff, with Brent futures now joining WTI in dipping below $100/bbl amid ongoing worries about a recession that would hurt energy demand.
August WTI crude (CL1:COM) -3.2% at $96.27/bbl, and September Brent crude (CO1:COM) -2.9% at $99.79/bbl, Brent's first time below $100 since April 25.
Energy (NYSEARCA:XLE) lags the other S&P sectors for a second straight day and is on pace for an 8% drop over the last two sessions.
Eleven of the day's 15 worst performers on the S&P 500 are in the energy group: (FANG) -5.9%, (EOG) -5.6%, (MRO) -5.3%, (DVN) -5.1%, (HES) -5.1%, (APA) -4.9%, (PXD) -4.4%, (HAL) -4.1%, (SLB) -4.1%, (VLO) -4.1%, (MPC) -4.1%.
Other relevant ETFs include (NYSEARCA:USO), (NYSEARCA:XOP), (VDE), (OIH), (IEO), (CRAK)
Operations at Kazakhstan's giant Tengiz oilfield reportedly were continuing despite an explosion that killed two workers.
"As fears of recession continue to trade blows with tight supply conditions, the former is clearly coming out victorious over the past 24 hours," Schneider Electric's Robbie Fraser told MarketWatch.
Oil demand "is simply not growing on an empirical basis to the degree that people had expected," Ed Morse, global head of commodity research at Citigroup, told Bloomberg.
But analysts at Goldman Sachs said the selloff was overdone in light of tight crude supplies, perhaps exacerbated by thin trading conditions following Monday's July 4 holiday.
"We believe this move has overshot... while risks of a future recession are growing, key to our bullish view is that the current oil deficit remains unresolved, with demand destruction through high prices the only solver left as still declining inventories approach critically low levels," the Goldman team wrote.
J.P. Morgan analysts warned recently that crude prices could skyrocket to as high as $380/bbl if Russia chooses to impose deep cuts in oil production; by contrast, Citi analysts said crude prices could collapse to $65/bbl this year in the event of a recession.