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Oil drops as much as 10%, breaks below $100 as recession fears grow

Oil well jacks operated by Chevron Corporation in San Ardo, California, USA, on Tuesday, April 27, 2021.

David Paul Morris | Bloomberg | beautiful pictures

Oil prices fell on Tuesday with the US benchmark falling below $100 as recession fears grew, stoking fears that a recession would cut demand for petroleum products.

West Texas Intermediate Crude Oil, the US oil benchmark, fell 8.24%, or $8.93, lower at $99.50 a barrel. At one point WTI fell more than 10%, trading as low as $97.43 per barrel. The contract last traded under $100 on May 11.

International standard Brent Crude Oil down 9.45%, or $10.73, lower at $102.77 a barrel.

Ritterbusch and Associates attributed the move to “a tightening in the global oil balance increasingly countered by the possibility of a sharp recession that has begun to cut oil demand.”

“[T]His oil market appears to be being impacted by some recent weakness in apparent demand for gasoline and diesel,” the company wrote in a note to clients.

Both contracts posted losses in June, posting their sixth straight gain as recession fears prompted Wall Street to reconsider its demand outlook.

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Citi said on Tuesday that Brent could fall $65 by the end of the year if the economy falls into a recession.

The company wrote in a note to clients: “In a recession scenario with rising unemployment, households and businesses going bankrupt, commodities will pursue a downward cost curve as spending increases. deflationary costs and negative margins led to supply cuts,” the company wrote in a note to clients.

Citi was one of the few oil companies at a time when others, such as Goldman Sachs, called for oil to hit $140 or more.

Prices have risen since Russia invaded Ukraine, raising fears of a global shortage due to the country’s role as an important supplier of goods, especially to Europe.

WTI spiked to a high of $130.50 a barrel in March, while Brent crude hit an impressive $140 gap. That’s the highest level per contract since 2008.

However, oil is still rising in the face of Russian aggression thanks to tight supply and recovering demand.

High commodity prices are the main cause of rising inflation, the highest level in 40 years.

Prices at the pump hit $5 per gallon earlier this summer, with the national average hitting a high of $5,016 on June 14. The national average has since fallen amid prices. oil fell and was at $4.80 on Tuesday.

Despite the recent drop, some experts think oil prices are likely to continue to rise.

Bart Melek, head of commodity strategy at TD Securities, said on Tuesday: “Recessions don’t have a great record of killing demand. Product inventories are at extremely low levels, which is why This also suggests that stockpiling will keep crude demand strong.” .

The company added that minimal progress has been made in resolving supply-side structural issues in the oil market, meaning that even if demand growth slows, prices will remain supported.

“Financial markets are trying to price in a recession. The physical market is telling you something really different,” said Jeffrey Currie, global head of commodities research at Goldman Sachs. told CNBC on Tuesday.

When it comes to oil, Currie said it is the tightest physical market on record. “We are having extremely low inventories across the space,” he said. Goldman has a $140 target on Brent.

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