Crude oil futures plunge $3/b as sentiment remains bearish

Crude oil futures were sharply lower in mid-morning trade in Asia June 23, extending declines from the previous session as investors continued to fret over a potential recession.

At 10:26 am Singapore time (0226 GMT), the ICE August Brent futures contract was down $3.57/b (3.19%) from the previous close at $108.17/b, while the NYMEX August light sweet crude contract fell $3.74/b (3.52%) at $102.45/b.

The NYMEX crude marker had fallen by as much as $8/b on June 22, with ICE Brent crude not far behind, though both contracts eventually trimmed losses to settle around $3/b lower.

The sell-off appeared not to have abated in the early June 23 session, with analysts saying that recession fears continued to weigh on investor sentiment, prompting many to cut their long exposures to oil.

"Growing fears over a recession have weighed on risk assets, and comments from [US Federal Reserve chair] Jerome Powell during his congressional testimony would not have helped," ING analyst Warren Patterson said in a June 23 note.

Powell, in a testimony before the US Congress June 22, said the Fed was "strongly committed" to reining in inflation, though he said that a recession was "certainly a possibility".

Powell added that achieving a soft landing for the US economy was going to be "very challenging".

"Powell can't remain upbeat on the economy and his comment that it will be very challenging to achieve a soft landing speaks to that," OANDA's senior market analyst Edward Moya said.

Nonetheless, most analysts maintain that the oil market remains tight despite the current wave of pessimism sinking risk assets.

Demand remains on the mend despite still-rising inflation, while Russian supply disruptions and limited OPEC spare capacity continued to crimp supply. The backwardation in prompt ICE Brent intermonth spreads in recent days has strengthened despite falling flat prices.

US President Joe Biden June 22 called on Congress to waive federal taxes on gasoline and diesel through September to ease the burden of soaring prices.

Although the proposal faces a tough road to approval in Congress, the tax holiday would amount to a 3.5% discount on gasoline, which could increase US gasoline demand by roughly 1%, said Rick Joswick, Platts Analytics' head of global oil at S&P Global Commodity Insights.

Dubai crude swaps were lower in mid-morning trade in Asia June 23 from the previous close, though intermonth spreads were higher.

The August Dubai swap was pegged at $97.88/b at 10 am Singapore time (0200 GMT), down $1.39/b (1.4%) from the June 22 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $3.43/b at 10 am, up 4 cents/b over the same period, and the August-September intermonth spread was pegged at $2.49/b, up 5 cents/b.

The August Brent-Dubai EFS was pegged at $10.73/b, down 6 cents/b.