(Bloomberg) — Oil headed for its worst trading day in nearly three months as recession fears frozen markets outweighed a fundamentally tight supply market.
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West Texas Intermediate crude futures fell as much as 10%, the most since March 9. Risk-off sentiment has permeated markets amid escalating concerns that a global economic slowdown will eventually dampen demand. Crude was prone to wild swings as traders fled for the exits after Russia invaded Ukraine, drying up liquidity. The latest decline came as stocks fell and the dollar soared. Citigroup Inc. said crude oil could fall to $65 this year in the event of a recession.
Oil prices have tumbled over the past month amid escalating fears of an economic slowdown as central banks aggressively raise interest rates. Still, physical barrels command huge premiums. On Tuesday, the kingdom raised its official selling prices to Asia. Its benchmark price for Arab light crude will be $9.30 above the regional benchmark in August, up $2.80.
“Crude oil prices have collapsed as concerns about weakening demand begin to outweigh fears of tight supply,” said Fawad Razakzada, market analyst at City Index. “A growing number of analysts expect that many of the world’s leading economies will experience negative growth over the next few months, and this will drag the US into recession.”
Saudi Arabia raises oil prices in Asia as demand remains steady
Adding to recession fears, Shanghai launched mass Covid testing in nine districts after discovering cases in the past two days, casting doubt on the recovery of demand in one of the world’s biggest oil-consuming countries. The additional testing has raised concerns that more lockdowns could be implemented as the city reported several infections on Sunday and Monday.
Although futures are under pressure from the threat of a global economic slowdown, key market time spreads remain stable, indicating that there is solid demand for short-term supplies. The strike in Norway and the disruption of supplies in Libya have exacerbated this force recently.
In welcome news for Biden, U.S. retail gasoline prices fell from a record high of more than $5 a gallon in mid-June. Pump prices were near $4.80 on Sunday, according to data from the AAA auto club, after falling for 21 straight days in the longest losing streak in more than two years.
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