WTI Hits Fresh Multi-month Lows in the $85s as Traders Focus on Bleak Demand Outlook

Key Points

• WTI fell to fresh multi-month lows in the $85s on Tuesday, with traders citing concerns about the demand outlook.
• US natural gas prices rose over 6.0% to near annual highs after a stark price warning from Russia’s Gazprom.
• Copper rebounded on China stimulus hopes while gold was subdued amid pre-Fed minutes/US Retail Sales data caution.

WTI Falls to Fresh Multi-month Lows in the $85s

Front-month futures of the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, fell to fresh multi-month lows in the $85s on Tuesday. In stark contrast to US equity traders, who seemed to focus on the optimistic signals that strong Walmart and Home Depot earnings plus better-than-expected July Industrial Production growth figures sent about the US economy as they pushed stock prices higher, oil traders seemed to instead remain focused on recent negative economic data.

In the US on Tuesday, data showed home building slipping to a near 18-month low in July, one day after data of China showed various sectors of its economy unexpectedly slowing in July. German ZEW investor sentiment data, also released on Tuesday, fell to levels that analysts said were consistent with recession. Concerns about a deterioration in the demand outlook for oil as the global economy slows, in large part due to the impact of rampant inflation which was worsened by this year’s invasion of Ukraine by Russia, continue to be the dominant theme in oil markets. Rallies remain at risk of being sold.

Oil traders are also monitoring an attempt by the EU to revive the 2015 Iranian nuclear pact. Iran responded to a final proposal by the EU on Monday, though the details of their response remain light. This has also been weighing on prices, as recent developments raise the chances that a deal is found and US sanctions preventing over 1 million barrels per day in Iranian exports from hitting global markets get lifted. Elsewhere, and further contributing to the downbeat tone in oil markets were new price forecasts from Barclays, who cut their Brent forecast by $8 barrels for the remainder of 2022 and 2023 given Russian output that has remained “resilient” to Western sanctions.

Ahead, oil traders will now once again be focusing on US crude oil inventory figures. Private weekly API figures are scheduled for release at 2030GMT ahead of the release of the US Energy Information Agency’s official inventory numbers at 1430GMT on Wednesday. Elsewhere in energy, US spot natural gas prices surged over 6.0% on Tuesday and are now back to within a stone’s throw of annual highs in the $9.50 area. Russia’s state-owned gas export Gazprom on Tuesday warned of a possible further 60% rise in gas prices this winter amid continued Western sanctions.

Copper Rebounds, Gold Remains Subdued Under $1,780

Looking at metals, copper prices saw a modest 0.5% rebound on Tuesday, despite the downbeat tone in oil markets on demand outlook concerns. Traders cited China stimulus hopes in wake of the PBoC’s rate cut earlier this week and commentary from Chinese Premier Li Keqiang, who said China will stop up policy support for the economy, as supporting the modest rebound. Copper prices are still down on the week after tumbling amid weak Chinese data on Tuesday.

Turning to precious metals, spot gold prices were unable to recover back above the $1,780 mark on Friday, with higher US equity and yields ultimately keeping the bulls at bay. Caution ahead of Wednesday’s FOMC minutes and July US Retail Sales data releases was also cited as suppressing volatility in the gold market.