(New York) Oil prices continued their decline on Wednesday after falling the previous day, led by fears of recession and lower demand, with Brent foraying below $100 a barrel, after WTI American who settled there.
Updated yesterday at 4:26 p.m.
A barrel of Brent crude from the North Sea, for September delivery, fell 2.02% to settle at $100.69, after slipping below the symbolic bar of $100 a barrel in the session for the first time since april.
The barrel of American West Texas Intermediate (WTI), for delivery in August, fell 0.97%, settling below 100 dollars since the day before, at 98.53 dollars.
On Tuesday, the two crude benchmarks had seen their biggest daily decline since March, when prices soared with the announcement of a US embargo on Russian oil, before plunging a few days later.
“Brent prices recorded the third largest absolute decline since the futures contract began trading in 1988,” UBS analysts said, as Brent tumbled 9.45% at the close after unscrewed by nearly 11%.
“These declines are precipitated by fears that a recession could further destroy demand, which is already shrinking due to high prices,” said Andy Lipow of Lipow Oil Associates.
“I have been through six oil price crashes in my career in the oil industry, a recession could cause a seventh”, added the analyst who judges that a marked slowdown in the economy “could reverse” the black gold market “causing a surplus of supply and therefore a significant fall in prices”.
“In addition to growing pessimism about the future of the economy, oil prices have also been affected by the resurgence of the dollar,” said Stephen Brennock of PVM Energy.
The Dollar Index, which compares the US currency to other major currencies, hit 107.26 points on Wednesday, a two-decade high.
However, a marked appreciation of the greenback weighs on black gold, since it weakens the purchasing power of investors using other currencies.
For Fawad Razaqzada, an analyst at City Index interviewed by AFP, crude prices have now crossed an important psychological level.
In a recession scenario, Citi analysts even mentioned oil prices falling to 65 dollars a barrel by the end of the year, then to 45 dollars in the absence of intervention by the Organization of oil-exporting countries and their allies (OPEC+).
No fundamental change
Analysts, however, insist that no fundamental shifts have rocked the oil market since Tuesday. The supply of black gold remains under scrutiny, with production disruptions taking place in some producing countries.
For Stephen Brennock, after the “bloodbath” of the day before, oil prices should even rebound, the fundamentals of the market having not changed.
“On the one hand, a recession could easily reduce the demand for oil. On the other hand, supply remains tight,” summarizes Russ Mould, analyst at AJ Bell.
The Norwegian giant Equinor, however, announced on Wednesday the resumption of production in three oil and gas fields, after the intervention of Oslo to end a strike which threatened exports from Norway.
Uncertainty crystallizes around OPEC+’s ability to produce more crude.
The alliance reiterated its “concerns about capacity issues due to years of underinvestment and the impact of Russia’s import bans,” said Susannah Streeter of Hargreaves Lansdown.
“OPEC’s spare capacity […] has thinned to its lowest level in years,” says Stephen Brennock.