Oil prices dropped more than 5% on Wednesday, falling to just over $80 per barrel and hitting their lowest point since January as rising fears that a global economic downturn will hurt demand weighed on energy markets.
The price of U.S. benchmark West Texas Intermediate slid roughly 5% to trade at less than $83 per barrel, reaching its lowest point since January amid growing recession fears.
The price of international benchmark Brent crude, meanwhile, fell below $90 per barrel for the first time since early February, now trading at just over $88.
Oil prices were unable to rally on Wednesday—continuing a recent slide—despite some recent bullish developments, including Russia keeping the Nord Stream pipeline offline and OPEC+ cutting production.
A variety of factors are “keeping a lid on prices,” says Vital Knowledge founder Adam Crisafulli, who points out that Europe is moving aggressively to cut reliance on Russian gas and to find alternative energy suppliers such as Norway.
With Russia turning to alternate buyers for oil like India and China, there is a looming threat of price caps, either from the G7 on Russian oil or from the EU on Russian gas, Crisafulli adds.
Global energy demand is softening, especially in China, where crude oil imports fell 9.4% last month compared to a year ago, as the country’s zero-Covid policy has led to full or partial lockdowns in more than 70 cities since late August.
“The oil market is a bloodbath” as crude prices take a major hit from “sharply weakening” global demand, describes Edward Moya, senior market analyst at Oanda. “It appears the risk of losing Russian energy supplies is no longer keeping oil prices supported,” he says, adding, “Global growth isn’t looking good at all and that is trouble for crude prices.” Domestic oil prices could hover around $80 per barrel “given how strong the U.S. economy remains and now that most of the demand shock from China’s deteriorating Covid situation has been priced in,” Moya predicts.
Despite prices continuing to slide in recent weeks, oil is up nearly 10% this year, peaking at nearly $140 per barrel in early March after Western nations sanctioned Russian energy imports following the invasion of Ukraine. Oil prices topped $120 per barrel again in June, but have since declined during the summer as concerns about a recession lead to demand fears, with prices hovering around $90 per barrel in August.
What To Watch For
Despite the recent slump in oil prices, U.S. gas prices still remain somewhat elevated. After topping $5 per gallon in June, gas prices have come down a bit in the last two months, with the current average at $3.76 per gallon, according to AAA. Still, with inflation remaining near 40-year highs, gas prices are unlikely to fall significantly unless oil prices drop further in a meaningful way, analysts say.
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