Under the gloom of recession, the market’s worries about weakening oil demand have intensified, and the price of wti crude oil fell “over 100” on Tuesday is a direct reflection.
wti crude oil fell as much as 10% to $97.43 a barrel during the session, and finally closed down 8.2% to $99.50 a barrel. This is the first time the oil price has fallen below $100 since May 11, and it also refreshed the largest single since April. daily decline.
brent crude oil prices were similarly subdued, falling 9.5% to $102.77 a barrel on Tuesday, after more than $120 a barrel less than a month ago.
Recession sparks oil demand worries
The status quo of the global crude oil market is that although the supply side has not yet stabilized, traders have turned more attention to the demand side, worrying that a recession may cut crude oil demand.
Ritterbusch and Associates, a crude oil consultancy, said: “The tight balance of the global crude oil market is increasingly offset by the strong possibility of a recession and has begun to weaken crude oil demand.
The company mentioned in the report:
The oil market appears to be paying attention, with a notable weakening in gasoline and diesel demand recently.
Average gasoline price demand for the four weeks ended June 24 was down about 2% from a year earlier, according to the U.S. Energy Information Administration. Separately, average gasoline prices across the U.S. have fallen back to $4.80 a gallon, down from last month’s record high of more than $5 a gallon, according to the American Automobile Association (AAA). However, gasoline is still more than 50% higher than it was a year ago, leading drivers to start cutting back.
U.S. retail gasoline prices have fallen for 21 straight days, according to AAA
More broadly , some crude oil traders have been affected by negative sentiment due to the gloomy economic outlook, which in turn has affected the performance of a range of commodities, said Jim Ritterbusch, president of the company.
Ritterbusch said:
EXPECTATIONS OF AN ACCELERATED RECESSION IN THE SECOND HALF OF THE YEAR WEIGHED ON A RANGE OF COMMODITIES, WITH OIL ALSO LARGELY INVOLVED.
He also added that falling prices are forcing some traders to change their bullish bets on crude oil, exacerbating the sell-off.
Demand weakens, supply increases
Louise Dickson, an analyst at energy research firm Rystad Energy, said oil companies have gradually increased production to respond to the $100-a-barrel price of oil at the same time as weaker demand, so it is possible to see more crude oil entering the market later this year. thereby further driving down prices.
Dickson also said that Rystad has gradually raised its forecast for U.S. crude oil production in the coming months.
Commodity markets ‘add to the woes’ with stronger dollar
In addition, a stronger dollar is another factor that has dragged down oil prices in recent sessions. The U.S. dollar index continued to climb, with the greenback surging to its highest level against the euro in nearly two decades. When the us dollar becomes more expensive against other countries, so does dollar-denominated commodity transactions.
Wall Street’s big banks start a “long-short war”
Due to the superposition of various factors, some major Wall Street banks have begun to be bearish on oil prices.
On Tuesday, Citi analysts including Francesco Martoccia and Ed Morse pointed out in their latest report that oil prices could fall to $65 a barrel by the end of the year and $45 a barrel by the end of 2023 due to the recession , which means oil prices are expected to fall 40% from their current level of $109.7 a barrel by the end of the year.
Citi noted in the report that historical evidence shows that, in the case of oil, global demand turns negative only in the worst global recessions. Falling demand and continuity of supply cause commodity prices to fall in most recessions, with oil prices falling to “marginal cost” in some recession scenarios.
Overall, continued weakness in global crude oil demand will lead to higher crude oil inventories and lower prices.
But there are also big Wall Street firms hold a different view.
After oil prices fell sharply on Tuesday, Goldman Sachs, a “famous commodity bull”, commented that it was too early for oil prices to fall due to recession fears as the global supply gap has not been resolved and oil prices have “overshooted.”
Bart Melek, head of commodity strategy at TD Securities, also said in a Tuesday report:
HISTORICALLY, RECESSIONS HAVE NOT BEEN VERY POWERFUL IN STIFLING DEMAND. INVENTORIES ARE CURRENTLY AT EXTREMELY LOW LEVELS, WHICH ALSO SUGGESTS THAT RESTOCKING WILL KEEP CRUDE DEMAND STRONG.
Analysts warn: Crude oil prices fall, fuel prices not necessarily keeping pace
Also, from a consumer perspective, the drop in oil prices appears to give them a temporary respite from high inflation, but some analysts have warned that the drop in oil prices may be different from what is usually expected due to limited global refining capacity. Capacity has pushed the ratio of retail fuel prices to crude oil prices significantly higher than normal.
There are few quick fixes to this, Goldman Sachs analysts wrote in a note over the weekend, as new refineries take years to come online and environmentalist concerns about fossil fuels hinder new industry investment .
Analyst Dickson said:
AS LONG AS U.S. AND EUROPEAN REFINERY CAPACITY REMAINS FAIRLY LIMITED, ABNORMALLY LARGE SPREADS BETWEEN CRUDE OIL AND THESE REFINED PRODUCTS WILL CONTINUE.