Crude oil futures rebound after overnight plunge, but sentiment remains fragile

Crude oil futures were higher in mid-morning Asian trade July 6 as investors bought the dip after a plunge of more than 9% overnight for ICE Brent crude, as sentiment remained highly vulnerable to recession fears.

An oil workers' strike in Norway that had disrupted supply and boosted prices was also resolved July 5.

At 10:20 am Singapore time (0220 GMT), the ICE September Brent futures contract was up $1.24/b (1.21%) from the previous close at $104.01/b, while the NYMEX August light sweet crude contract was 77 cents/b (0.77%) higher at $100.27/b.

Oil prices nosedived in the overnight session July 5, with ICE Brent settling lower by 9.5% and NYMEX crude by 8.2%, as fresh recession fears drove a bout of panic-selling in the market.

Analysts said the overnight plunge was likely due to a further culling of speculative long positions, with fundamentals in the oil market still pointing to tight oil supply.

"The overnight crash was speculative, panic selling -- nothing changed on the oil fundamentals front. So, a bounce back is to be expected," Vandana Hari, CEO of Vanda Insights, told S&P Global Commodity Insights July 6.

"Whether or not it recoups all the latest losses remains to be seen. There will be bargain-hunting and there will be a section of the market convinced that in the short term, demand has not slumped enough to offset the supply shortages and constraints," Hari added.

Nonetheless, sentiment in financial markets looked increasingly fragile, with the Euro hitting a 20-year low against the US dollar July 5. Europe looked increasingly on the brink of a recession as the region battles concerns of a severe gas shortage.

"The gas situation is very worrying in Europe, especially if the Nord Stream shutoff is unresolved in the coming weeks," said SPI Asset Management Managing Partner Stephen Innes. "The fear is this will lead to a broadening out of energy disruption with material upfront effects on economic growth and, of course, much higher inflation."

The Bank of England in its latest Financial Stability Report July 5 said the economic outlook for the UK and the rest of the world has "deteriorated materially", though it said UK banks will be able to weather a severe economic downturn.

Some supply fears eased after Norway's government intervened July 5 to end a strike by offshore oil and gas field managers. Lederne, one of the trade unions that had planned to strike, said workers on strike would return to work immediately and new strikes would be called off.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia July 6 from the previous close.

The September Dubai swap was pegged at $91.39/b at 10 am Singapore time (0200 GMT), down $9.60/b (9.51%) from the July 5 Asian market close.

The August-September Dubai swap intermonth spread was pegged at $4.19/b at 10 am, down 16 cents/b over the same period, and the September-October intermonth spread was pegged at $2.94/b, down 20 cents/b.

The September Brent/Dubai EFS was pegged at $12.26/b, down 50 cents/b.