The price of a barrel of oil fell to its lowest level since February on Thursday as investors reacted to growing fears that a looming recession will sharply reduce energy demand.
A barrel of West Texas Intermediate traded at less than $88 a barrel at one point on Thursday, a level not seen since early February
That was before Russia’s invasion of Ukraine pushed oil prices to their highest level in years on fears of a wider war and left countries scrambling to replace sanctioned Russian crude.
After hitting a peak of nearly $140 a barrel in March, oil has slid steadily lower since then, but Thursday’s selloff was sparked by new U.S. data showing Americans are driving less this summer than even two years ago. in 2020 pandemic lockdowns.
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Rory Johnston, founder of Commodity Context, says gas prices are still trying to stabilize from the unprecedented surge in demand seen earlier this year.
“For much of the summer, gas prices were going higher and higher or higher and people … were stockpiling because they didn’t know how high it was going to go,” he said in an interview. “Now things have turned around and prices are falling very quickly.”
Gasoline is one of the main uses of oil, so crude oil prices are falling just like gas stations. But oil is also falling as more and more economic data suggests the global economy is slowing and may slip into recession, which will reduce demand for energy.
“What we’re seeing is definitely that the whole oil market has swooned over some of these concerns,” Johnston said.
OPEC will increase production
Martin Pelletier, portfolio manager at Wellington-Altus Private Counsel, says there are good reasons to worry about a recession, but ultimately he thinks the outlook is more likely to surprise on the upside than on the downside.
He noted that this week the oil cartel OPEC agreed to increase production by 100,000 barrels a day, something it would not have done if it thought the market was ready to crash.
“OPEC has a really good understanding of the global oil markets, they are actually increasing their price and production,” he said in an interview. “But that $90 number raised concerns about the direction of oil from here.”
Johnston says the current decline in oil can be seen as good news or bad news, depending on your point of view.
“The silver lining is definitely the cheaper gasoline [but] the storm cloud on the other side of that lining is potentially lower gas prices as the economy weakens.”
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