Crude oil prices fell nearly 7% on Tuesday as fears of a recession mounted, a scenario that could dampen demand for oil.
The sharp drop in prices comes after Saudi Arabia announced a price hike for all its crude oil grades in August in its prized market, Asia. The price increase in Saudi Arabia comes mostly as expected by the market due to strong refining margins and expectations of strong demand.
But while Saudi Arabia raised the August price of its top crude for Asia, Arab Light, by $2.80 a barrel, the price of Brent and WTI crude fell sharply. Saudi Arabia sets the price trend for most Middle Eastern oil exporters and is generally considered to be leading the way in the state of the oil market.
WTI crude fell $9.01 a barrel by 12:37 PM ET, below $100 a barrel to $99.42 (-8.31%), while Brent crude sank $10.41 a barrel to $103.10 (-9.17%).
Also on Tuesday, a Citi report suggested oil prices could fall to $65 a barrel by the end of this year and $45 by the end of next year if the world goes into recession and demand falls.
According to Citi, oil demand turns negative “only in the most severe global recessions, but oil prices fall in all recessions to roughly marginal cost.”
However, in the same report, Citi said it does not expect the US economy to fall into recession.
At the complete opposite end of the spectrum, former Russian President Dmitry Medvedev suggested that capping the price of Russian oil at half its current level could send oil prices soaring above $400 a barrel.
JP Morgan warned this weekend that oil could hit $380 a barrel in a worst-case scenario if Russia starts cutting crude oil production in response to sanctions.
By Julian Geiger for Oilprice.com
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