Business Maverick

Business Maverick

Oil Extends Losses Near $118 as Global Market Selloff Deepens

An oil storage tank beyond pipelines at the Duna oil refinery, operated by MOL Hungarian Oil & Gas Plc, in Szazhalombatta, Hungary, on Thursday, May 26, 2022. Hungarian Prime Minister Viktor Orban said there was no consensus among European Union leaders on banning Russian oil but signaled he was ready to agree if the bloc guarantees his country still receives the fuel via a pipeline and other measures in case that avenue is disrupted. Photographer: Akos Stiller/Bloomberg

Oil extended losses for a third session as the prospect of further monetary tightening to combat surging US inflation sent global markets spiraling lower. 

West Texas Intermediate futures fell about 2% to trade below $118 a barrel. US inflation accelerated to a fresh 40-year high last month and traders are now betting the Federal Reserve will raise rates by three quarters of a percentage point at least once in its next three meetings. China is starting to re-impose virus curbs as cases rise, just weeks after major easing in key cities such as Shanghai.

Still, oil is up almost 60% this year as rebounding economic demand coincided with a tightening market following Russia’s invasion of Ukraine. The war has fanned inflation, driving up the cost of everything from food to fuels and some analysts are calling it the most bullish market they’ve ever seen.

Even faced with US economic slowdown, fundamentals for a tight crude market remain, said Pavel Molchanov, an analyst at Raymond James & Associates Inc. “When markets are worried about macroeconomic conditions equities take a lot of the hit” but oil prices have still shown to be “incredibly resilient,” said Molchanov.

US inflation and China's virus outbreaks weigh on prices

Goldman Sachs Group Inc. reiterated on Friday that energy prices need to climb further for Americans to start cutting consumption. US retail gasoline prices have repeatedly broken records and recently hit $5 a gallon.

  • WTI for July delivery dropped $2.43 to $118.24 a barrel at 10:43 a.m. in New York.
  • Brent for August settlement fell $2.44 to $119.57 a barrel.

The US has repeatedly asked OPEC to pump more crude to help tame rising gasoline prices and the hottest inflation in decades. President Joe Biden said on Saturday that he hasn’t yet made a decision about visiting Saudi Arabia, but that if he went it would be to take part in meetings that go beyond energy topics. A visit would reflect a shift in diplomatic priorities.

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