Oil is on the back foot again early Wednesday following a rebound to start the shortened week in the previous session.
SPDR Energy (NYSEARCA:XLE) is down nearly 4% in premarket trading, the weakest of all the sectors.
After six-straight winning months, WTI is down about 9% for June, while Brent is down nearly 11%.
Worries of global monetary tightening causing recessions are fueling a demand destruction narrative in commodities.
“A flurry of central bank moves last week has revealed many are ignoring the crushing effect this will have on growth,” BlackRock said in note. “This dynamic raises serious growth risks, and we now see the U.S. restart of economic activity stalling over the coming quarters.”
Morgan Stanley said its Cross Asset Systematic Trading strategy “is now net short commodities for the first time since late 2020, driven by moderating energy longs and rising metals shorts.”
“CAST is still running with energy over metals on more backwardated curves, better carry and better momentum than metals. Valuations have finally become a challenge for energy, causing CAST to scale down energy exposure especially via heating oil and gasoline.”
XLE is still the only S&P sector in the green year to date, up about 38%.
MKM Partners says that sellers are now taking aim at energy stocks. Struggling winners are typical in the later innings of market declines, analyst J.C. O’Hara noted.
But looking ahead “the long-term uptrend in oil is still intact with critical price support (for WTI) lying between $99.50 and $102.50, as a break below would shift the technical outlook,” Kinsale Trading said.
“Fundamentally, various factors including Chinese lockdowns, recession fears, and legislation threats will move markets on an intraday basis but the war in Ukraine remains the dominant influence on energy.”
Yesterday, Exxon said oil markets will remain tight for years.