The prices of the two major oil benchmarks are down over 1% at the start of the London trading session, continuing their decline from Wednesday as investors reassess the risks of recession and the impact of interest rate hikes in major economies on fuel demand.
The global benchmark, the Brent crude oil futures is down 2.01%, currently trading 109.47 per barrel. The U.S. benchmark, the West Texas Intermediate (WTI) is down 2.03%, currently trading $104.04 a barrel. Both benchmarks tumbled by as much as $3 a barrel in early morning Asian trade, after plunging around 3% in the previous session. They are at their lowest levels since mid-May.
Investors are continuing to assess how worried they need to be about central banks potentially pushing the world economy into recession as they attempt to curb inflation with interest rate increases. This has caused the price of the black liquid to fall as investors maintain a bearish stance despite the ongoing Russian – Ukraine war.
What you should know
- U.S. Federal Reserve chief Jerome Powell said on Wednesday the central bank was not trying to engineer a recession to stop inflation but was fully committed to bringing prices under control even if doing so risked an economic downturn.
- Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd, explained, “Oil markets remained under pressure as investors were concerned that U.S. rate hikes would stall an economic recovery and dampen fuel demand.”
- Saito further stated, “The U.S. and European hedge funds have been selling off their positions ahead of the end of the second quarter, which is also cooling investor sentiment.” He also went on to predict that the WTI could fall below $100 a barrel before the July 4 holiday in the United States.
- President Vladimir Putin also said on Wednesday that Russia was in the process of rerouting its trade and oil exports towards countries from the BRICS group of emerging economies in the wake of Western sanctions over Ukraine.
- On this, Analysts from Haitong Futures wrote, “With more data proving that Russian crude supply is less affected by sanctions than most people have previously estimated, the supply side may see a larger-than-expected increase in the near term.”
- This is evident because China’s crude oil imports from Russia in May were up 55% from a year earlier and at a record level.
- Reuters also reported that India is providing safety certification for dozens of ships managed by a subsidiary of top Russian shipping group Sovcomflot, enabling oil exports to India and elsewhere after Western certifiers withdrew their services due to global sanctions against Moscow.
Also weighing on bearish sentiments is U.S. President Joe Biden calling on Congress to pass a three-month suspension of the federal gasoline tax to help combat record pump prices and provide temporary relief for American families this summer.
On this, Saito explained, “The news temporarily boosted the oil product prices, but it was later viewed that even if the gasoline tax was suspended, retail prices would remain high, making it difficult to stimulate demand.”