Crude oil futures were higher in mid-morning Asian trade July 13, trimming losses after a plunge of more than 7% overnight as the near-term outlook weakened considerably amid COVID-19 curbs in China and weakening sentiment in Europe.
At 10:16 am Singapore time (0216 GMT), the ICE September Brent futures contract was up 33 cents/b (0.33%) from the previous close at $99.82/b, while the NYMEX August light sweet crude contract was 27 cents/b (0.28%) higher at $96.11/b.
Brent overnight plunged below $100/b, revisiting lows not seen since April, as a confluence of bearish factors saw investors rapidly exiting long positions.
“[There is no one] smoking gun today for the crude price weakness, but I would say it’s a combination of a few factors,” said SPI Asset Management Managing Partner Stephen Innes in a July 13 note, citing COVID-19 curbs in China, inflation and a strong dollar among the factors weighing on prices.
The ZEW Indicator of Economic Sentiment for Germany fell to minus 53.8 in July, data released late July 12 showed, plunging 25.8 points from June and reaching the lowest level since November 2011.
The figures will further heighten fears of a severe economic slowdown for Europe, particularly as the region weighs the possibility of a halt in Russian gas inflows.
“The [ZEW] readings reflect the panic ripping through Europe over a potential prolonged hiatus in Russian gas supply and the recessionary implications of that,” said ANZ Research analysts Brian Martin and Daniel Hynes in a note. “Russian gas accounts for around 10% of EU energy requirements and gas may have to be rationed.”
The Euro was seen hitting parity with the US dollar for the first time in 20 years on July 12, in a sign of weakening confidence in Europe’s outlook.
Heathrow imposes caps
The weakness comes as London’s Heathrow airport, the busiest airport in Europe, starts imposing capacity caps over two months starting July 12 due to severe staff shortages impacting airport operations.
The airport will limit daily departing passengers to no more than 100,000, Heathrow CEO John Holland-Kaye said in an open letter July 12.
The implications of limiting airline capacity will significantly impact passenger numbers. Airlines are looking at a more than 20% reduction in seats over and above the most recent cuts that airlines were requested to make by the UK Government, according to OAG’s John Grant.
Despite the recent dive in oil prices, analysts maintain that underlying fundamentals remain bullish.
“Brent is in oversold territory at the moment, and the fundamentals do not justify the scale of the selloff we have seen in recent weeks,” said ING’s Head of Commodities Strategy Warren Patterson. “The oil market is still tight, as reflected in the prompt Brent spread. The outlook is for this tightness to persist.”
Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia July 13 from the previous close.
The September Dubai swap was pegged at $88.45/b at 10 am Singapore time (0200 GMT), down $4.37/b (4.71%) from the July 12 Asian market close.
The August-September Dubai swap intermonth spread was pegged at $3.30/b at 10 am, down 34 cents/b over the same period, and the September-October intermonth spread was pegged at $2.31/b, down 45 cents/b.
The September Brent/Dubai EFS was pegged at $10.77/b, down $1.03/b.
Source: Spglobal.com
