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TradersBest.com / Oil Prices Fall Amid Recession Fears

Oil Prices Fall Amid Recession Fears

Publish Date: 23/06/2022

Thursday saw the price of oil falling over 2% as analysts weighed up whether a series of interest rate hikes across the world could induce a major global recession. This is based on the fear that further increases in the cost of borrowing would slow down the economic recovery and put a dampener on the demand for fuel. 

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Both US West Texas Intermediate crude futures and Brent crude futures had slipped by more than 2% and they now are at their lowest trading prices in over a month. Analysts are now pondering whether West Texas Intermediate could fall from its current price of just above $103 to below the $100 per barrel benchmark before July 4. Other commodities such as industrial metals have also seen their prices start to fall this June.

This goes against the prevailing trend of 2022 which have seen investors flocking to back commodities amid the high demand for raw materials. In the S&P 500 alone, there has been a 32% rise in the energy sector this year. But now it looks like the increasingly negative economic outlook is starting to outweigh the supply difficulties that have plagued much of last year.

Interestingly, it seems that the supply of Russian crude oil appears to be relatively unharmed by the extensive sanctions leveled at the country in light of the invasion of Ukraine.

This is because Russia is now targeting its oil exports away from European markets towards countries such as China that have seen a 55% rise in Russian oil imports compared to a year ago. Much will depend on whether China decides to open up its markets further following the strict measures of its Covid-zero policy. As such, there is expected to be a rise in oil supply in the next few months which would do more to bring prices down.

Have oil prices peaked?

The fact that West Texas Intermediate posted its first weekly loss in eight weeks last week has meant that many are suggesting that oil prices may have finally peaked. This comes after a year where the price of oil has more than doubled what it was less than two years ago.

There remain big concerns about whether the world’s central banks are pushing the global economy into recession. With inflation rates skyrocketing, governments are being left with little option but to introduce a series of interest rate hikes in a bid to counter the overheating economy.

This week has already seen the Federal Reserve chief, Jerome Powell, saying that he was willing to risk a downturn in the economy if it meant bringing the soaring prices and general cost of living under control.

President Biden recently asked Congress to give the green light to a temporary suspension of federal gasoline tax in a bid to bring down prices at the gas pump. However, there remain concerns that retail gas prices would still stay high despite the tax cut.

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