The slowdown in demand and fears of a recession have helped lower the price of US oil (WTI) to less than $ 100 a barrel, a sharp change from the high price levels recorded in recent months.
Oil prices climbed earlier this year as the war in Ukraine cut off supply lines and reopened the world after the plague suddenly increased demand. This move contributed to the stubborn inflation that gripped the world’s major economies in 2022. Growth forecasts are tightening because central banks are trying to take over inflation by cooling economic activity, pulling down traders’ forecasts for future demand for oil.
Brent Oil International Benchmark Contracts fell $ 10.73, or 9.5 percent, to $ 102.77 a barrel on Tuesday. WTI oil, the American standard, finished down $ 8.93, or 8.2%, and sold for $ 99.50 a barrel, the first time the price has dropped below $ 100 since early May, and in percentage terms the biggest drop since April.
Just less than a month ago, Brent futures traded above $ 120 a barrel, when there was pressure on global supply due to the Russian invasion of Ukraine.
Drivers are reducing travel because of rising fuel prices
The war shows no immediate signs of decline, but traders’ attention shifts to the possibility that a decline in economic growth may cool demand for fuel. Consumer spending and industrial orders are showing signs of slowing down, according to data released last week, thus highlighting investors’ growing concerns about the possibility ofRecession.
Average U.S. fuel prices have dropped to $ 4.80 a gallon, from a high of more than $ 5 a gallon that hit drivers last month, according to the AAA, the American Drivers Association. Drivers reduce travel.
On a broader look, crude oil traders are feeling the weight of the negative sentiment that has driven the commodity basket down, with the economic forecast shrinking, said Jim Ritterbusch, president of the oil consulting firm Ritterbusch & Associates. The S&P index of commodity prices in general fell by 6.4% last night.
“Accelerating expectations for the recession in the second half of the year has weighed on a variety of commodities, and oil has been largely swept away by it,” Ritterbush said.
The drop in prices is forcing some traders to drop bullshit bets on crude oil, he said, exacerbating big sales (selloff).
Some energy traders have focused on indicators that fuel demand is already moderating. Based on a four-week average calculation, demand fell by about 2 percent at an annual rate through June 24, according to the Federal Energy Information Administration.
At the time, oil companies were gradually responding to $ 100 a barrel by increasing production activity, a process that could bring more crude oil to markets later this year and bring further price relief, said Louise Dixon, an analyst at RystadEnergy. The company has gradually raised its forecast for U.S. crude oil production in the coming months, she said.
The strengthening US dollar was another factor pulling down oil prices in recent trading days. The dollar continued to climb against other major currencies, rising close to its highest value against the euro in 20 years. As the dollar becomes more expensive for foreigners, so does the trading of commodities priced in US currency.
Analysts do not expect significant relief in fuel prices
Energy-related stocks were also hit, losing about 4% on Tuesday, the steepest decline of all 11 areas measured S&P 500 Follows them. The index itself recorded an increase of 0.2%, an index Dow Jones Decreased by 0.4%, while indexed NASDAQ Advanced by 1.8%, compensating for previous losses, on the first trading day of the week that was shortened due to the Independence Day holiday.
Aside from the recession fears, the typical summer downturn in agricultural markets caused speculators to retreat from commodities, which earlier in the year were a popular gamble among fund managers who wanted to protect the rest of the investment portfolio from price increases. “Hedge funds are taking chips off the table,” said Dave Whitcomb of Peak Trading Research.
Analysts have warned that the drop in crude oil prices may bring less relief than expectations for drivers and other fuel consumers. This is because of the limitations of the world’s refining capacity, which have created a gap between the price of refined fuel and the price of crude oil which is higher than the typical levels.
There are not many quick fixes, because operating new distilleries is a matter of years, and environmental activists’ concerns about fossil fuels have acted against new investments in the field, Goldman Sachs analysts wrote in a statement released last weekend.
“As long as refining capacity remains under pressure in the U.S. and Europe, there is going to be a large and ongoing gap between crude oil prices and the prices of these refined products,” Dixon said.