Business Maverick

Business Maverick

Oil Plummets to Near $100 as Recession Risks Come to Forefront

Oil Plummets to Near $100 as Recession Risks Come to Forefront
An oil storage tank beyond pipelines at the Duna oil refinery, operated by MOL Hungarian Oil & Gas Plc, in Szazhalombatta, Hungary, on Thursday, May 26, 2022. Hungarian Prime Minister Viktor Orban said there was no consensus among European Union leaders on banning Russian oil but signaled he was ready to agree if the bloc guarantees his country still receives the fuel via a pipeline and other measures in case that avenue is disrupted. Photographer: Akos Stiller/Bloomberg

Oil dropped alongside broader markets as investors grew more anxious about signs of a rapidly deteriorating US economic outlook. 

West Texas Intermediate crude futures dropped as much as 5.9% to near $102 a barrel. Oil was pressured lower on Tuesday as equities fell and the dollar surged, making commodities priced in the currency less attractive. Citigroup Inc. said that crude could fall to $65 this year in the event of a recession, a call in stark contrast to JPMorgan Chase & Co.’s most bullish $380 a barrel scenario.

“In the very near term the Dow & S&P will have a major factor on crude direction as recession fears remain,” said Dennis Kissler, senior vice president of trading at BOK Financial. Fundamentally, there are concerns that fuel demand could “drop significantly now that the 4th of July holiday is behind us.”

Saudi Arabia Raises Asia Oil Prices as Demand Stays Robust

Oil drops close to $100 as recession fears increase

Adding to recessionary fears, Shanghai launched mass testing for Covid in nine districts after detecting cases the past two days, calling into question the demand recovery in one of the world’s biggest oil-consuming countries. The additional testing brings concerns that more lock downs could be implemented as the city reported several infections Sunday and Monday.

Oil futures prices have cooled in the past month amid escalating fears over an economic slowdown as central banks aggressively raise interest rates. Still, physical barrels are fetching enormous premiums. The kingdom hiked its official selling prices to Asia on Tuesday. Its flagship Arab Light crude price will be $9.30 above its regional benchmark in August, an increase of $2.80.

Prices:
  • WTI for August delivery fell $7.01 to $101.42 a barrel at 10:56 a.m. in New York
    • There was no settle on Monday due to the July 4 holiday
  • Brent for September settlement dropped $8.46 to $105.04 a barrel

While futures have been pressured by the threat of a global economic slowdown, key market timespreads remain robust, indicating that there’s solid demand for near-term supplies. A strike in Norway and supply disruption in Libya have exacerbated that strength of late.

In welcome news for Biden, retail gasoline prices in the US have eased from a record above $5 a gallon in mid-June. Pump prices were near $4.80 on Sunday, according to figures from auto club AAA, after slipping for 20 consecutive days in the longest losing run in more than two years.

Gallery

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