Recession fears are driving the oil slump

Oil prices briefly fell more than 5% on Thursday, falling to levels not seen since the war in Ukraine, buoyed by recession fears shattering demand for black gold amid record inflation in the United States and the euro zone threaten .

• Also read: Brent closes below $100 for first time since April

As of 14:15 GMT (10:15 Montreal), a barrel of North Sea Brent, due for delivery in September, lost 3.67% to $95.93.

A barrel of American West Texas Intermediate (WTI), scheduled for delivery in August, fell 4.40% to $92.04.

Fears of a slowdown in demand erased gains made after the invasion of Russia, when crude oil prices shot up to levels not seen since the 2008 financial crisis.

The two global crude oil benchmarks returned to their pre-invasion Ukraine levels when Brent was between $95 and $99 a barrel and WTI was trading between $90 and $94 a barrel.

However, the price of Brent and WTI remains up around 22% year-on-year, with supply disruptions and the prospect of an impending Russian invasion already pushing prices higher earlier in the month 24th February.

“Recession fears are once again the engine” of the price decline, comments Craig Erlam, analyst at Oanda.

The European Commission on Thursday cut its euro-zone growth forecasts for 2022 and 2023 to 2.6% and 1.4%, respectively, from 2.7% and 2.3% previously expected due to the increasing impact of the war in Ukraine.

Inflation, meanwhile, has been pushed to historic highs, with consumer price inflation estimated at 7.6% in 2022 and 4% in 2023, up from 6.1% and 2.7% previously, according to Brussels forecasts.

On Wednesday, the release of the US Consumer Price Index (CPI) for June “raised the prospect of an aggressive hike by the Fed (US Federal Reserve) to slow the US economy,” said Spi’s Stephen Innes.

In June, prices in the country rose again, with inflation reaching 9.1%, the highest level since November 1981. A sharp surge threatening growth as consumption is the main driver of the US economy.

For Tamas Varga, an analyst at PVM Energy, if interest rates rise again, “the economy should contract” and growth gradually slow, “which will inevitably impact oil demand.”

A rate hike would provide further support for the dollar, which has been at levels against the yen or the euro for decades, at levels that would weigh on the purchasing power of oil market investors using other currencies.

Leave a Comment