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Oil trading turns bearish as crude futures are dragged down by recession signals

17:00, 17 August 2022

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Photo of oil pumpjacks in China.
Oil trading has turned negative over fresh signals of a recession that would hit crude oil demand. – Photo: Getty Images

Oil trading has swung to a bearish mood this week: crude futures fell on Tuesday and struggled to make gains Wednesday, dragged down by economic data from China, the US and UK that suggested slowing global growth could hit crude demand in the coming months.

Brent futures fell 3.2% on Wednesday as data from the UK failed to lift investor sentiment – the British administration said consumer price inflation has shot up to a fresh 40-year high on rising food prices.

Crude futures have dropped for three straight sessions this week before recovering slightly on Wednesday.

Brent oil futures

Previously, the New York Federal Reserve’s latest survey of manufacturers showed that business activity declined sharply in state of New York. “The headline general business conditions index plummeted forty-two points to -31.3,” it noted.

That followed downbeat Chinese figures published at the beginning of the week. Industrial production and retail sales in the world’s second-largest economy grew at a slower-than-expected rate in the month of July.

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China weakness weighing on oil

China is the largest importer of crude oil the world over. “It is becoming quite clear that weakness in Chinese oil demand is one of the main reasons for the steady decline in oil prices since early June,” according to the SEB Group’s chief commodities analyst Bjarne Schieldrop.

“Chinese crude oil imports were below 9 m bl/d in both June and July and apparent oil demand is no higher today than it was in October 2019. According to our Asia strategist Eugenia Victorino, there is little hope that China will change its Covid-19 stance anytime soon. Thus high risk that Chinese weakness persists amid continued rolling lock-downs from month to month.

Natural Gas

6.97 Price
+0.140% 1D Chg, %
Long position overnight fee -0.1813%
Short position overnight fee 0.1348%
Overnight fee time 21:00 (UTC)
Spread 0.005

Silver

20.46 Price
-3.060% 1D Chg, %
Long position overnight fee -0.0116%
Short position overnight fee 0.0027%
Overnight fee time 21:00 (UTC)
Spread 0.020

Oil - Brent

91.10 Price
-0.280% 1D Chg, %
Long position overnight fee 0.0516%
Short position overnight fee -0.0781%
Overnight fee time 21:00 (UTC)
Spread 0.10

Oil - Crude

85.46 Price
-0.410% 1D Chg, %
Long position overnight fee 0.0236%
Short position overnight fee -0.0430%
Overnight fee time 21:00 (UTC)
Spread 0.03

“So a normalization of Chinese oil demand at some point in time will of course be extremely bullish for oil prices once it happens. Problem is that it doesn't look like it's going to happen anytime soon,” Schieldrop wrote in commentary published on 15 August.

 

Tough times in the UK, says BoE

Earlier this month, the Bank of England warned that the United Kingdom is “projected to enter recession from the fourth-quarter of this year.”

“Near-term inflationary pressures in the UK and the rest of Europe have intensified significantly since the May Report,” the central bank said in its August Monetary Policy Report.

“That reflects a near doubling in wholesale gas prices, due to Russia’s restrictions on its supply of gas to Europe and the risk of further curbs. This latest rise in gas prices, and to a lesser extent, a tightening in financial conditions, have led to another significant deterioration in the outlook for world activity, with economies in Europe, including the UK, particularly severely affected,” it added.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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