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Crude Oil Prices Slump on Liquidation Amid Hawkish Fed, Recession Fears Despite Tight Supply, OANDA Analyst Says

Crude oil prices plummeted overnight Wednesday in what appears to be a culling of speculative longs and trend-following fast money, even as the supply and demand imbalance persists in the real world, OANDA analyst Jeffrey Halley said in a Thursday note.

Brent tumbled 4.8% to $99.75 per barrel and West Texas Intermediate fell 2.8% to $98.10/b overnight Wednesday. With physical buyers in Asia jumping in on the slump, Brent at last look edged up 0.5% to $101.19/b and WTI rose 0.4% to $98.93/b early Thursday.

The volatile Wednesday session came as hawkish Federal Open Market Committee minutes and recession fears prompted more long liquidation, Halley noted.

The rally in oil prices early Thursday highlights the disconnect between the speculative market on the futures exchanges and the reality of the physical market, where futures contracts remain heavily in backwardation, indicating that immediate oil supplies remain tight, according to Halley.

The fall in prices looks to be an adjustment to recessionary fears and speculative noise in the futures space, as demand destruction is yet to be felt, the analyst added.