(Bloomberg) — Oil fell to levels not seen since before Russia’s invasion of Ukraine as record U.S. inflation and disappointing Wall Street financials intensified fears of a recession.
Global benchmark crude fell 5.1% to trade below $95 a barrel, hitting its lowest level since late February. Crude oil has been retreating since early June on growing fears that the US could slip into recession. Shortly after the war began, Brent futures soared above $139 as Russia’s war in Ukraine upset an already tight supply-demand balance.
Markets across the board were in negative territory on Thursday as the dollar resumed its advance, weakening commodities priced in the currency. Traders’ expectations have tipped toward a historic one percentage point Fed interest rate hike later this month.
However, global oil supply remains tight, as seen in time spreads that show a large premium for barrels on the spot. Goldman Sachs Group Inc. said the market is “screaming” scarcity and this week’s drop has been driven by low liquidity and technical factors.
“Crude is in freefall as demand data is weaker and macro risk factors completely overwhelm the fundamentally tight physical market,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “Risks in the weeks ahead appear skewed to the downside, keeping even the most convinced bulls on hold.”
President Joe Biden landed in the Middle East on Wednesday, just as a report showed US inflation spiked to a four-decade high last month, largely due to energy costs.
“Concern about the impact of high inflation on economic growth and oil demand is visibly growing,” said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd. “The prices themselves and the structure are not in sync.”
In the US, signs are emerging that high gasoline prices are beginning to affect consumption. Gasoline demand in the country fell to the lowest level for this time of year since 1996, and was even lower than the same week in 2020, according to the Energy Information Administration. The four-week moving average for gasoline demand was the lowest on a seasonal basis since 2000. Crude stocks rose by 3.25 million barrels.
New outbreaks of covid-19 in China have also deteriorated the outlook for oil demand. The Shanghai outbreak appears to be subsiding, but lockdowns are being implemented in other regions to curb the spread of the virus. On Wednesday, 292 cases were registered across the country.
Crude Erases War-Driven Gains as Recession Fears Hammer Markets
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