Oil futures moved lower on Tuesday, pressured by ongoing fears of an economic recession that could slow energy demand, even as tight global supplies helped to keep a floor under prices.
Price action
- West Texas Intermediate crude for November delivery CL.1, -3.05% CLX22, -3.05% CL00, -3.99% was down $1.80, or 2.1%, at $83.66 a barrel on the New York Mercantile Exchange.
- December Brent crude BRN00, -2.35% BRNZ22, -2.35%, the global benchmark, declined by $1.35, or 1.5%, to $90.27 a barrel on ICE Futures Europe.
- Back on Nymex, November gasoline RBX22, -2.83% fell 2.1% to $2.5398 a gallon, while November heating oil HOX22, -0.59% was down 0.2% at $4.0798 a gallon.
- November natural gas NGX22, -0.63% fell 0.4% to $5.977 per million British thermal units after dropping 7% on Monday.
Market drivers
On the charts, WTI oil “made a lower low and lower high on Monday, suggesting the near-term path of least resistance is still lower,” analysts at Sevens Report Research wrote in Tuesday’s newsletter. “There is some decent technical support at the $85 level.”
“On a longer time frame, it appears that WTI is falling into a broad trading range here between support at $78 [a] barrel and resistance at $93 [a] barrel, as tight physical markets are temporarily offsetting demand fears associated with an increasingly likely recession looming in the quarter ahead,” they said.
Crude has given back a large chunk of the gains scored in the first week of October when OPEC+ — made up of the Organization of the Petroleum Exporting Countries and allies including Russia — agreed to cut production by 2 million barrels a day beginning in November. The actual cut is expected to be around half that size since several producers were already pumping below their targets, but the move was still seen as significant, particularly as the group made the decision to cut despite calls from the Biden administration to raise output.
“On the near-term horizon, the clash between the U.S. and OPEC+ continues to heat up and underscores the political nature of some potential bearish for oil catalysts,” said Stephen Innes, managing partner at SPI Asset Management. “Given OPEC’s current stance on production, the U.S. has every incentive to progress talks with Iran and Venezuela, especially ahead of the U.S. midterm elections.”
On Monday, strong gains for U.S. equities and a weaker dollar failed to push oil prices higher, noted Warren Patterson, head of commodities strategy at ING, in a note.
“Instead, the market still seems wary of the demand outlook for the market. President Xi has made it clear that China will continue to follow a zero-COVID policy, which raises uncertainty over Chinese oil demand through 2023. Recession concerns elsewhere only add to the market’s uncertainty,” he wrote.
Bloomberg reported that the Biden administration is moving toward a release of another 10 million to 15 million barrels of oil from the Strategic Petroleum Reserve in an effort to keep gasoline prices from rising further. A release would be the latest tranche of a 180-million-barrel program of releases that began earlier this year.
The Energy Information Administration will release its weekly petroleum inventory report on Wednesday morning. On average, analysts polled by S&P Global Commodity Insights forecast supply declines of 1.2 million barrels for crude, 2.2 million barrels for gasoline, and 2.5 million for distillates.