Oil futures fell below $100 a barrel for the first time since May as concerns mount that a global economic slowdown will eventually hit demand.
West Texas Intermediate crude futures were down 9.3% to near $98 a barrel. Oil was put under pressure in a low liquidity session on Tuesday as equities fell and the dollar rose, making the commodity’s price less attractive in the currency. Citigroup Inc said crude could fall to $65 this year in bearish conditions, a call in contrast to JPMorgan Chase & Co.’s sharpest $380 per barrel scenario.
Fawad Razakzada, market analyst at City Index, said: “Crude oil prices declined as concerns about weak demand begin to offset fears about tight supply. There will be negative growth in many major economies over the next few months, and it will drag the US into recession.”
Adding to fears of a slowdown, Shanghai launched large-scale testing for Covid in nine districts after detecting cases in the past two days, improving demand in one of the world’s biggest oil-consuming countries. The additional testing brings concerns that more lock downs could be enforced as the city reported several infections on Sunday and Monday.
Oil futures prices have cooled over the past month amid fears of an economic slowdown as central banks aggressively raise interest rates. Still, physical barrels are receiving a hefty premium. The state on Tuesday increased its official selling price in Asia. Its flagship Arab Light crude will cost $9.30, a rise of $2.80 from its regional benchmark in August.
While futures have been pressured by the threat of a global economic slowdown, key market timings remain strong, indicating that there is solid demand for near-term supply. Strikes in Norway and supply disruptions in Libya have recently added to this strength.
In welcome news for Biden, retail gasoline prices in the US have dropped from a record low of above $5 per gallon in mid-June. Pump prices were near $4.80 on Sunday, according to data from Auto Club AAA, falling for 21 consecutive days after their longest loss in more than two years.