Topline
Oil prices dropped 9% Tuesday—falling back below $100 per barrel for the first time since May—as some experts warn that prices could fall to as low as $60 per barrel by the end of the year if an economic downturn significantly curtails demand.
Oil prices are stuck in a “tug-of-war between supply and growth concerns,” experts say.
Key Facts
The price of U.S. benchmark West Texas Intermediate slid roughly 9% to trade at around $98 per barrel, while international benchmark Brent crude now sits at just over $102 per barrel.
The last time oil traded at below $100 per barrel was in early May—and although prices rose from there, both WTI and Brent crude posted losses in June for the first time in six months as experts worry that a recession will hurt global demand.
Despite prices moderating in recent weeks, oil is up nearly 15% this year—hitting a high of nearly $140 per barrel in early March after Western nations sanctioned Russian energy imports, though the country is still selling its supply to China and India.
With oil now hovering at around $100 per barrel, some strategists predict more pain ahead later this year: Citi analysts say prices will fall to around $60 by the end of 2022 if the economy does fall into a recession.
With a downturn “increasingly likely,” demand declines and excess supply will likely hurt prices, Citi strategists said in a note on Tuesday, arguing that Brent crude could tank to $65 per barrel by the end of this year and potentially fall to $45 in 2023.
Even amid recent declines, some experts remain bullish: “Recession fears are killing the crude demand outlook, but with prices roughly 17% lower from the March high, oil shouldn’t go much lower,” says Edward Moya, senior market analyst at Oanda.
What To Watch For:
The “tightness” in global energy markets is being countered by the “strong likelihood of recession,” which along with the surge in prices earlier this year has begun to “curtail oil demand,” according to a recent note from Ritterbusch and Associates.
Crucial Quote:
Oil prices are “extremely weak” as investors “grow more somber about the economic outlook,” remaining caught in a “tug-of-war between supply and growth concerns, while Europe continues to face enormous gas price risks,” says Vital Knowledge founder Adam Crisafulli.
Tangent:
The Euro fell to a new 20-year low against the dollar on Tuesday. The currency has taken a hit as soaring gas prices from Russia’s war in Ukraine send recession fears surging higher, with central banks scrambling to raise interest rates. Amid Western sanctions on Russian oil and gas, Euro zone inflation has skyrocketed—reaching a record 8.6% in June. The U.S. dollar, meanwhile, has remained strong even as the Federal Reserve similarly hikes interest rates in a bid to cool surging consumer prices. With what now seems to be a “never-ending Russian war in Ukraine,” the related spike in oil and other commodity prices have “fanned painfully high inflation” across the globe, says Mark Zandi, chief economist at Moody’s Analytics.
Further Reading:
Dow Falls 600 Points As Yield Curve Inverts Again, With Global Recession Fears ‘Front And Center’ (Forbes)
Stocks Close Out Worst First Half Of A Year Since 1970 (Forbes)
Warren Buffett Adds To Massive Stake In Occidental Petroleum, Buying The Dip After Oil Prices Drop (Forbes)
