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Oil prices tank, could reach 'single digits' fearing recession | |
| Staff Writer |
Oil incurred heavy losses for two consecutive days in the past week, dropping further to a 12-week low on last Wednesday, as recession concerns grew. Both Brent and WTI closed on Wednesday at their lowest since April 11, following a dramatic fall on Tuesday despite tight global supplies.
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WTI slid 8% while Brent tumbled 9% - a $10.73 drop that was the third biggest for the contract since it started trading in 1988.
The decline is likely to accelerate if there's any "unexpected economic deterioration", said Norbert Rücker, Head Economics and Next Generation Research, Julius Baer.
"The sentiment cycle has likely turned earlier than expected and could continue to pressure prices going forward. We see fundamentals unchanged. With Russian oil still flowing, the shale business expanding and demand stagnant, oil prices should eventually drop into the single digits," Rücker said in a note.
Oil prices had rallied to more than $100 per barrel, supported by economic recovery and an increase in global demand amid easing COVID-19 restrictions in previous months. In the UAE, fuel prices went up by as much as 15 percent per litre, putting pressure on household budgets.
With consumer demand not showing any signs of further pickup, oil producers are still eager to pump more supply into the market. Rücker said the recent fuel price increases are "likely to bring some demand destruction, as households adjust their habits to save expenses." He also noted that oil-producing countries, as well as shale businesses continue to produce more supply.
"In sum, we believe that oil markets should begin to ease with storage levels incrementally easing compared to seasonal trends," Rücker said.
"Should the economic cycle unexpectedly soften more meaningfully, the fundamentals would change more markedly, putting even greater pressure on oil prices. That said, market conditions remain prone to any further unforeseen additional supply shock."