Oil rises after sell-off, but euro stuck at 20-year low, stocks fall

HOUSTON, TX – JULY 5: A Shell gas station was spotted in Houston, Texas on July 5, 2022. Gasoline prices in Houston and across the country have fallen for three straight weeks, according to tech company Gasbuddy. Brandon Bell/Getty Images/AFP (Photo by Brandon Bell/GETTY IMAGES NORTH AMERICA/Getty Images via AFP)

HONG KONG, China (AFP) – Oil prices rose on Wednesday after a painful fall the day before, although the euro remained at a 20-year low and equities fell mostly in Asia as recession fears continue to spread in trading floors.

Both major crude contracts failed on Tuesday as investors grow more worried that major economies will shrink this or next year due to a sharp hike in interest rates by the central bank to fight inflation that has been high in decades.

The main US contract, WTI, fell almost nine percent below $100 a barrel for the first time since April, while Brent lost about 10 percent on expectations that any recession would hit demand despite tight supplies caused by the war in Ukraine.

Citigroup said in a note that a recession could push prices down to $65 this year unless OPEC and other major producers step in to provide support and companies invest.

There are also signs that the high cost of fuel is reducing demand, which in turn is driving prices down. Earlier this week, the head of Asian crude oil trading giant Vitol said he saw signs that consumers are beginning to feel the pressure of high prices, a phenomenon known as demand destruction.

However, Goldman Sachs said it thinks the commodity will remain elevated.

“While the chances of a recession are indeed rising, it is premature for the oil market to give in to such concerns,” bank analysts including Damien Courvalin said.

“The global economy is still growing and oil demand growth this year should significantly outstrip GDP growth.”

– Eyeing the euro-dollar parity –
Commentators say falling oil prices and the prospect of a recession could give central banks an opportunity to ease their monetary tightening campaigns, which could provide some relief to equities.

Among those who win are interest-rate-sensitive tech firms that have surged as Treasury bond yields, a proxy for interest rates, have fallen.

Two women walk past a currency exchange office with a sign showing prices for euros, dollars and rubles in Kyiv, July 2, 2022, amid the Russian invasion of Ukraine. (Photo by Miguel MEDINA/AFP)

“Markets are saying a recession is coming, inflation will slow, commodities will fall and the Fed will cut rates in 2023,” said Gang Hu of Winshore Capital Partners.

He said it’s hard to go against that point of view “because this storyline is coherent. It can be a self-fulfilling process.”

However, while rumors that Joe Biden is considering removing some Trump-era tariffs on Chinese goods have helped, stocks in Asia have struggled.

Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Jakarta and Taipei fell, while Singapore, Wellington and Manila posted gains.

Investors have also been spooked by the novel coronavirus outbreak in parts of China, with some cities under lockdown as part of authorities’ anti-coronavirus policies.

The euro remained under pressure and appears to be heading towards parity with the dollar after hitting a 20-year low due to the European Central Bank’s decision not to raise interest rates until this month, lagging behind the Fed’s rapid pace of hikes that drove the dollar down. soaring.

The continent also faced an energy crisis caused by sanctions on Russian fuel, and a workers’ strike in Norway threatened further supply cuts.

“The euro has depreciated sharply due to a toxic cocktail of negative factors,” said Stephen Innes of SPI Asset Management.

“A strangely indecisive ECB contrasts with a more aggressive Fed as worries over natural gas supply disruptions and economic recession deepen.”

And he warned that a further fall in the single currency could happen.

“It is unlikely that we have reached the maximum uncertainty and complete negativity, which opens the door for a test below sub-parity. So with the Euro-Dollar in the middle of 1.02, it might not be too late to punch your ticket to ride the parity party bandwagon.”

– Key figures around 02:30 GMT –
West Texas Intermediate: up 0.8% to $100.27 per barrel

Brent North Sea oil: up 1.3% to $104.07 per barrel

EUR/USD: DOWN to $1.0262 from $1.0266 on Tuesday

Euro/lb: DOWN by 85.78p from 85.85p

Dollar/yen: above 135.24 yen from 135.87 yen.

Pound/dollar: UP $1.1966 from $1.1956

Tokyo – Nikkei 225: REDUCED 1.3% to 26,089.86 (hiatus)

Hong Kong – Hang Seng Index: DOWN 1.1% to 21,609.59.

Shanghai – Composite: DOWN 1.1% to 3366.66.

New York-Dow: DOWN 0.4% 30,967.82 (close)

London – FTSE 100: 2.9% down to 7,025.47 (close)

© Agence France-Presse