Oil, commodity prices under renewed pressure as euro flirts with dollar parity

Oil and other key commodities came under renewed pressure July 12 as the dollar rose to fresh 20-year highs and came close to parity with the euro fuelled by escalating concerns over the health of the global economy.

Brent crude futures were trading 2% lower at below $105/b in early European trade amid fears of new lockdowns due to COVID-19 infections in China and fears that fiscal tightening by Central Banks will tip global growth into reverse.

Oil prices have been under pressure since the start of the month — dipping below $100/b — due to concerns about demand. A stronger dollar also makes crude more costly for major oil importers, further exacerbating demand woes for the world’s top energy commodity.

The ICE US Dollar index climbed to 108.41 in early European trading the highest since October 2002. The S&P GSCI commodity index has fallen14.5% over the last week and stood at 698 on July 11, the lowest since Feb. 28.

“We believe that the firm US dollar, which has now almost reached parity with the euro, is weighing on prices,” Commerzbank said in a July 12 note “The combination of high energy prices and rising interest rates is fuelling concerns about a recession that would have a serious impact on oil demand.”

In Europe where recession fears are strongest, the euro almost hit parity with the dollar early July 12 with the exchange markets factoring in a hit to the trade bloc’s growth as it faces a potential shut-off of Russian gas flows.

European gas hit

Surging energy costs in Europe due to oil and gas supply risks from the fallout of sanctions on Russia are weighing heavily on demand sentiment in the region.

The TTF month-ahead price was last assessed at Eur163.65/MWh July 11, up 98% since the start of June and 345% higher year on year. The benchmark Dutch TTF month-ahead price is now back close to the all-time high of Eur212.15/MWh reached in early March, according to Platts price assessments from S&P Global Commodity Insights.

European gas demand is down about 10% in the first half of 2022, but mostly as a consequence of very mild weather Jan-May 2022 vs very cold weather in the first months of 2021 and particularly cold weather in April and May.

“There is additionally the fear in Europe that Russia might halt its gas supplies once the routine maintenance work on the Nord Stream Baltic Sea pipeline that has been underway since yesterday has been completed in the middle of next week,” Commerzbank said.
Source: Platts