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Can Oil Markets Withstand Recession Fears?

Offshore

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading nearly flat for the week as fears of recession are leading to increasing worries over future demand. An unexpected build in American Petroleum Institute (API) and U.S. Energy Information Administration (EIA) weekly inventories is also pressuring prices. We’re also feeling the impact of disappointing economic reports in China and Europe on Wednesday.

Limiting the downside risk is better-than-expected U.S. retail sales data and expectations of OPEC production cuts.

Recession Fears

Recession fears were raised earlier in the week after the bond market flashed a troubling signal about the U.S. economy. This increased worries over lower future demand. The fears were triggered when the yield on the benchmark 10-year Treasury note briefly broke below the two year rate, “an odd bond market phenomenon that has been a reliable indicator of economic recessions,” according to CNBC.

A recession occurred, on average, 22 months after the inversion, Credit Suisse research showed. Nonetheless, investors are bailing out of higher risk assets like crude and seeking shelter in Treasurys and Japanese Yen.

EIA Reports Surprise Inventories Build

On Wednesday, the government reported that U.S. crude stocks grew by 1.6 million barrels the week-ending August 9, compared with analyst expectations for a decrease of 2.8 million barrels, as refineries cut output, the EIA said…





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