Oil fell $8.93 or 8.2 per cent to US$99.50 a barrel to the lowest since mid-May as recession fears mount around the world. Investors are expecting that a recession would lead to a slowdown in global demand over the persistent supply chain disruptions. The price of crude has had a volatile run over the past month due to this concern so it's not unfamiliar news. Adding to the woes, are the supply outages and protests disrupting exports in Libya.
Libya has been entangled in conflict since the fall of Moammar Al Qaddafi in 2011. It’s now facing a standoff between two politicians, Abdul Hamid Dbeibah and Fathi Bashagha. Why? They each claim to be the legitimate Prime Minister.
The recent closures are linked to politics with some protests at ports and fields demanding the transfer of power to Bashagha, the fair and transparent distribution of oil revenues and the dismissal of National Oil Corporation chairman Mustafa Sanalla.
Investors are also watching the moves in Norway. The strike came to a halt around a few hours ago at time of writing, after the Norwegian government intervened to end a strike, according to Reuters.
"Workers are going back to work as soon as possible. We are cancelling the planned escalation," Lederne union leader Audun Ingvartsen told Reuters. Asked whether the strike was over, he said,"yes".
Norwegian offshore oil and gas workers went on strike over pay on Tuesday, the first day of planned industrial action that had threatened to cut the country's gas exports by almost 60 per cent and exacerbate supply shortages linked to the Ukraine war.
Oil and gas from Norway, Europe's second-largest energy supplier after Russia, is in high demand as the country is seen as a reliable and predictable supplier, especially with Russia's Nord Stream 1 gas pipeline due to shut for maintenance from July 11 for 10 days.
Meanwhile, UK Prime Minister Boris Johnson said on Monday that Saudi Arabia will need to produce more oil to help reduce the cost of living. British wholesale gas price for day-ahead delivery had leapt nearly 16 per cent on Tuesday.
Saudi Arabia and the UAE are the only countries with significant spare capacity to pump crude. OPEC+ has stuck to their plan of a 648,000 barrels per day increase in August and held back from any talks from September. The Group is more than half a billion barrels behind on its commitment to supply oil to the world with its compliance rate at 256 per cent in May, 2.7 million barrels a day below their collective target.
Without a pledge from the two OPEC members to boost output, the pain of high fuel prices are likely to persist.
Adding to all of this, President Biden is set to travel to the Middle East from 13 to 16 this month which could be a significant play on the price of crude. Soaring prices at the pump have become a political issue and to supplement the tight market, the Biden Administration has tapped into the strategic petroleum reserve which is only a temporary measure. Currently, the US Energy Department reports that the US Strategic Petroleum Reserve is sitting at its lowest levels since April of 1986 so this support is set to come to an end soon.
With recession concerns front of mind, the strength of the US dollar rallied against the Aussie dollar. One Australian Dollar at 7:30am has weakened against the US dollar since yesterday, buying 68.02 US cents. Commodities are sold in US dollars which puts commodity prices under pressure.
Energy stocks are likely to really feel the pain today and it could be the same with copper and gold stocks.
Copper fell 4.3 per cent to US$7,658 a ton
Aluminium lost 3.2 per cent to US$2,373 a ton
Nickel added 0.6 per cent to US$22,581 a ton
Gold lost $37.60 or 2.1 per cent to US$1764 an ounce
Zinc fell 4.2 per cent to US$3,040 a ton
Sources: Bloomberg, Reuters, UBS