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As oil prices tumbled yesterday, the US oil benchmark West Texas Intermediate (WTI) crude was at 8.24% or $8.93, less at $99.50 per barrel.
The markets remain in a tremble with recession fears growing by the day, which has also led to another fall in oil prices, with the US benchmark falling lower than $100 on 7th June. As recession fears grow globally, there are concerns that an economic slowdown will cause a low demand for petroleum products. First, Russia’s invasion of Ukraine, then inflation worries, and now, recession. The entire market is in shock and barely managing to stay afloat.
The global market has been in the mud since Russia stomped Ukraine on 24th February. The war sparked concerns about global shortages in many commodities considering Russia’s position as a key supplier to a lot of locations, including Europe.
US Oil Benchmark Below $100 as Possible Recession Affect Prices
As oil prices tumbled yesterday, the US oil benchmark West Texas Intermediate (WTI) crude was at 8.24% or $8.93, less at $99.50 per barrel. The same day, WTI dropped over 10% to trade as low as $97.43 per barrel. The last time the oil benchmark traded under $100 was on 11th May. Additionally, international benchmark Brent crude was lower at $102.77 per barrel, settling at 9.45% or $10.73.
According to Ritterbusch and Associates, oil prices plunge in the US is due to a possible recession. The oil trading advisory firm said the move is attributed to “tightness in global oil balances increasingly being countered by strong likelihood of recession that has begun to curtail oil demand.”
In a note to clients, the firm noted that oil prices are dropping on weak demand for gasoline and diesel. Last month, both gasoline and diesel posted losses after six months of amassing gains. Recession fears also caused Wall Street to lower its demand outlook, contributing to the fall in oil prices and the US benchmark drop.
Investment banking company Citi (NYSE: C) recently stated that Brent could decline to $65 by the end of 2022 if the economy moves into a recession. The bank wrote:
“In a recession scenario with rising unemployment, household and corporate bankruptcies, commodities would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments.”
Notably, Citi is known to be an oil bear even when other firms are optimistic about oil prices. On the other hand, Goldman Sachs (NYSE: GS) once predicted that oil would reach $140 or over.
Oil Prices Highs Since 2008
Shortly after the Russia-Ukraine war began, WTI surged to a high of $130.50 per barrel in March. Similarly, Brent recorded its highest level since 2008 at $140. Since the high records, oil prices have steadily declined with the US benchmark struggling. Despite the current situation, some experts believe oil prices may be unbothered. Head of Commodity Strategy at TD Securities, Bart Melek, noted that “recessions don’t have a great track record of killing demand. Product inventories are at critically low levels, which also suggests restocking will keep crude oil demand strong.”