Oil prices rose on Wednesday after suffering a painful slump the previous day, although the euro remained pegged at a 20-year low and stocks fell mostly in Asia as recession fears continue to roil stock markets.
Both major crude contracts were thrashed on Tuesday as investors grew concerned that leading economies will contract this year or next amid sharp hikes by the central bank aimed at tackling decades of inflation.
The key US contract, WTI, fell nearly 9 percent below $100 a barrel for the first time since April, while Brent slipped around 10 percent on expectations a recession would choke demand despite tight supplies amid the Ukraine war.
And Citigroup said in a note that a recession could take prices as high as $65 this year unless OPEC and other big producers step in to provide support and companies don’t invest.
There are also signs that high fuel costs are hurting demand, which in turn is pushing prices down. Earlier this week, the Asia chief of crude oil trading giant Vitol said he saw signs consumers were starting to feel the pressure of high prices – a phenomenon known as demand destruction.
Still, Goldman Sachs said it expects the commodity to remain high.
“While the likelihood of a recession is indeed increasing, it is premature for the oil market to give in to such concerns,” the bank’s analysts, including Damien Courvalin, said in a statement.
“The global economy is still growing, with oil demand growth set to significantly outpace GDP growth this year.”
– Aiming for euro-dollar parity –
Commentators said falling oil prices and the prospect of a recession could give central banks room to ease their monetary tightening campaigns, which could bring some relief to stocks.
Among the beneficiaries are interest rate-sensitive technology companies, which have risen as government bond yields, an indicator of interest rates, fall.
“Markets are saying a recession is coming, inflation will slow, commodities will fall and the Fed will cut interest rates in 2023,” said Gang Hu of Winshore Capital Partners.
He said it’s hard to disagree with the view “because this plot is consistent. It can be a self-fulfilling process.”
But while speculation that Joe Biden was considering lifting some Trump-era tariffs on Chinese goods helped, stocks in Asia struggled.
Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Jakarta and Taipei were all down, although Singapore, Wellington and Manila posted gains.
Investors have also been spooked by a new coronavirus outbreak in parts of China, which has seen some cities go into lockdown as part of officials’ zero-Covid policy.
The euro remained under pressure and appeared to be heading towards parity with the dollar after hitting a 20-year low on the European Central Bank’s decision not to raise interest rates until this month and lagged the Fed’s rapid pace of rate hikes , which has sent the dollar ascending.
The continent is also facing an energy crisis caused by sanctions on Russian petrol, while a strike by workers in Norway threatened to further cut supplies.
“The euro has depreciated sharply on a toxic cocktail of negative drivers,” said Stephen Innes of SPI Asset Management.
“An oddly hesitant ECB contrasts with a more aggressive Fed, worries of a natural gas disruption and economic recession deepening.”
And he warned that the single currency could face further losses.
“We have improbably reached maximum uncertainty and total negativity, which opens the door to a test below subparity. So, with the euro-dollar in the mid-1.02, it might not be too late to stamp your ticket for an onward journey on the parity party train.”
– Key figures at 0230 GMT –
West Texas Intermediate: up 0.8 percent to $100.27 a barrel
North Sea Brent Crude: up 1.3 percent to $104.07 a barrel
Euro/Dollar: DOWN at $1.0262 from $1.0266 on Tuesday
Euro/Pound: DOWN at 85.78p from 85.85p
Dollar/yen: up at 135.24 yen from 135.87 yen
Pound/dollar: rise to $1.1966 from $1.1956
Tokyo – Nikkei 225: down 1.3 percent at 26,089.86 (breakout)
Hong Kong – Hang Seng Index: FALSE, up 1.1 percent to 21,609.59
Shanghai — Composite: down 1.1 percent at 3,366.66
New York – Dow: DOWN 0.4 percent 30,967.82 (close)
London – FTSE 100: down 2.9 percent at 7,025.47 (close)
#Oil #rises #selloff #euro #remains #20year #stocks #fall
