The price of a barrel of oil fell Thursday to its lowest level since February, as investors react to growing fears that a looming recession could significantly reduce demand for energy.
A barrel of West Texas Intermediate was changing hands below $88 a barrel at one point Thursday, a level it hasn’t traded at since early February
This was before Russia’s invasion of Ukraine, which pushed oil prices to their highest level in years over fears of a wider war and sent countries scrambling to replace Russian crude. sanctioned.
After peaking at nearly $140 a barrel in March, oil has been falling steadily since, but Thursday’s selloff was sparked by new data from the United States showing Americans are driving less this summer than two years ago, in 2020. pandemic lockdowns.
Rory Johnston, founder of Commodity Context, says gas prices are still trying to stabilize after the unprecedented surge in demand seen earlier this year.
“For much of the summer, gas prices went up more and more and people stocked up because they didn’t know how high it was going to go,” he said. in an interview. “Now it’s reversed and prices are falling very quickly.”
Gasoline is one of the main uses of oil, so crude prices go down just as they do at the gas pump. But oil is also dragged lower as growing economic data suggests the global economy is slowing and could enter a recession, which will reduce demand for energy.
“What we’re seeing is certainly the whole oil market swooning over some of these concerns,” Johnston said.
OPEC to increase production
Martin Pelletier, portfolio manager at Wellington-Altus Private Counsel, says there are valid reasons to worry about a recession, but ultimately he thinks the outlook is more likely to surprise on the upside. only downward.
He noted that this week the OPEC oil cartel agreed to increase production by 100,000 barrels a day, which it would not have done if it thought the market was about to take a dive.
“OPEC has a very good understanding of world oil markets, they’re actually increasing their price and their production,” he said in an interview. “But that $90 figure has raised concerns about where oil is heading from here.”
Johnston says the current drop in oil can be seen as good or bad news, depending on your perspective.
“Silver lining is certainly the cheaper gasoline [but] the storm cloud on the other side of that liner is potentially lower gas prices because the economy is weakening.”