After falling on recession fears, oil recovers and trades above $100

Oil prices increased by as much as almost 3% on Wednesday before reversing some of their gains as investors flooded the market following a severe sell-off the previous day. Supply issues are once again at the forefront, despite persistent concerns about a worldwide recession.

After falling 9.5 percent on Tuesday, the worst daily drop since March, Brent oil futures increased as high as $3.08, or 2.9 percent, to $105.85 a barrel in early trade. At 8:13 am, it was recently up 92 cents, or 0.9 percent, at $103.69 per barrel.

After closing below $100 for the first time since late April, U.S. West Texas Intermediate crude rose to a session high of $102.14 per barrel, up $2.64 or 2.7 percent. At $99,96 per barrel, it was last up 46 cents, or 0.5 percent.

“Today is sort of a reset. No doubt there is short covering and bargain hunters are coming in,” said John Kilduff, partner at Again Capital LLC.

The sector is “under siege” as a result of years of underinvestment, according to OPEC Secretary General Mohammad Barkindo. He said that shortages could be alleviated if additional supply from Iran and Venezuela were permitted.

Dmitry Medvedev, a former president of Russia, also issued a warning, claiming that a rumoured Japanese proposal to control the price of Russian oil at around half its current level would result in much less oil being available on the market and raise prices above $300-$400 per barrel.

On the other hand, a union official and the labour ministry reported that the Norwegian government intervened on Tuesday to halt a walkout in the petroleum industry that had reduced oil and gas production, breaking a deadlock that might have made Europe’s energy crisis worse.

According to the Norwegian Oil and Gas (NOG) employers’ lobby, by Saturday, the strike will have reduced daily gas exports by 1,117,000 barrels of oil equivalent (boe), or 56 percent, and lost 341,000 barrels of oil.

However, market jitters of a recession have persisted. The greatest economy in the world may have contracted in the three months between April and June, according to preliminary estimates. That would constitute a technical recession since it would be the second consecutive quarter of shrinkage.

In June, more G10 central banks increased interest rates than in any month during the previous two decades combined, according to calculations by Reuters. Inflation is at multi-decade highs, thus policy tightening is projected to continue at its current rate in the second half of 2022.

“Although crude oil still faces the problem of a supply shortage, key factors that led to the sharp selloff in oil yesterday remain,” said Leon Li, a Shanghai-based analyst at CMC Markets. He attributed the pressure on commodity prices to the tightening of policy by international central banks and a potential interest rate increase by the U.S. Federal Reserve.

Oil prices are therefore expected to stay under pressure in the near future, and today’s recovery could be a temporary adjustment for bears.