Concerns about demand dominate commodity markets' wagers on economic shrinkage
Oil prices have fallen below $95 per barrel for the first time since Russia's invasion of Ukraine, as worries of an oncoming global recession grip commodities markets and diminish demand projections.
Both main oil benchmarks lost more than $5 per barrel, or more than 5 percent, on Thursday, adding to a wide decline over the preceding six weeks.
Brent, the global benchmark, dropped as low as $94.50 a barrel. On February 23, the day before Russia's invasion of Ukraine, it closed at $96.84. US benchmark West Texas Intermediate fell to $90.56, below its pre-war closing price of $92.10.
“Fear of recession is what is driving the market today,” said Dennis Kissler, senior vice-president of trading at BOK Financial.
Russian president Vladimir Putin's full-scale invasion of Ukraine prompted prices to skyrocket earlier this year, with Brent and WTI temporarily trading above $130 as western nations imposed sanctions on Russia, one of the world's largest exporters.
Since then, however, recessionary fears and the possibility of the US Federal Reserve choking growth with further aggressive increases in interest rates have halted the advance. Since mid-June, crude oil prices have decreased by almost one-fifth as speculators anticipate a major decline in demand.
“The market is very concerned that recessionary demand destruction is going to put the brakes on growth,” said Robert Yawger, executive director for energy futures at Mizuho.
In recent weeks, oil has not been the only commodity to lose momentum. Many of the price increases that have contributed to high inflation levels have also declined. Copper and iron prices have decreased by almost a third from their spring high.
“They’re all crashing,” said Stephen Schork, editor of oil market newsletter The Schork Report. “Commodities are your best economic indicator and what they’re indicating is pain down the road for this economy.”
Oil price increases have exerted pressure on the administration of US president Joe Biden, whose polling numbers have declined as motorists face near-record pump costs.
Biden is scheduled to go to Riyadh on Friday for his first meeting with Saudi crown prince Mohammed bin Salman, during which he will urge the country to pump more oil in an effort to reduce prices.
Data released on Thursday revealed that high costs were beginning to discourage US motorists from going to the roads. The Energy Information Administration of the United States said on Wednesday that gasoline consumption was at its lowest level for this time of year since 1996.
“The rally perhaps ran out of the fuel of plausible arguments and hard data supporting it,” said Paul Horsnell, head of commodities research at Standard Chartered.
“There’s a limit to how often consultants and analysts can simply say ‘it’s very tight’ and expect the market to accept that without seeing much data backing the contention up.”
By fLEXI tEAM