The price of West Texas Intermediate crude tumbled as much as 10% Tuesday, to hit a low of $97.43 before closing at $99.50, down 8% on the day. Brent crude oil was down by more than 10% when it hit a low for the day of $101.10 a barrel, before settling at $102.77 at the close.
It’s the first time that WTI has been below $100 since May 11. That was also the last time Brent, which typically trades a bit higher, was below $102 a barrel. Brent has not been below $100 since April 25.
Wholesale gas futures fell as well, down almost 10% for the day at the close, or 36 cents a gallon.
Rising fears about the chances of a recession are the primary driver of the latest sell-off in oil and gasoline futures, said Tom Kloza, global head of energy analysis for OPIS.
Until fairly recently, oil and gasoline investors had believed that there was little in the way of market forces to keep prices in check in the near term. “There is now a perceived huge downward risk tied to recession risk,” he said.
But the supply of oil is only part of the equation traders consider when bidding on oil futures. Demand is the other part. And nothing kills demand like a recession, which reduces economic activity overall. When people get laid off, there are fewer people driving to work or to the store or other destinations.
So far, drivers have seen relatively little relief at the gas pump from the recent fall in oil and gasoline futures. The national average price of gas has fallen only 4%, or 22 cents, since the June 14 record, while wholesale gas futures have dropped 22% since topping out at $4.28 a gallon on June 9.
“There’s no compelling reason for retailers to lower their price more with this strong demand,” said Kloza.
There could be more price drops at the pump in the near term — a decline of another 10 cents a gallon in the next week or so wouldn’t be a surprise, Kloza said. Station owners who are paying less for wholesale gas will be watching to how much of the savings their competitors are passing on to customers before they set their own prices. But the expression that gas prices go up like a rocket and come down like a feather is likely to play out once again, Kloza said.
There likely won’t be any big declines until schools reopen and the summer driving season ends this fall, he predicted. There are also risks that further developments in Russian oil exports tied to the war in Ukraine or hurricanes hitting US oil infrastructure along the Gulf Coast could send prices climbing up rapidly once again.
“I wouldn’t put away the fives used in gas price signs quite yet,” he said.
Source : CNN