Oil prices dived on Tuesday, falling by the most in almost four months, as a broad sell-off in commodities markets reflected fears that an economic downturn will undercut fuel demand.
Brent crude, the international benchmark, dropped 9.5 per cent to settle at $102.77 a barrel, the lowest price since early May. The US marker West Texas Intermediate fell back below $100 to settle at $99.50 a barrel, off by 8.2 per cent. *
Other futures contracts including wheat, silver and copper also declined, knocking the Bloomberg Commodity index 4.5 per cent lower. Stock markets also dropped.
Amrita Sen, an analyst at Energy Aspects, said the sell-off was driven by gathering concerns of an economic recession. She expected oil prices to rebound as supplies remained tight.
“It’s a macro move. Equities came off, all commodities came off. So it’s a broader risk-off move rather than being rooted in fundamentals . . . Recessionary fears are there but the [oil] demand numbers are still strong,” she said.
Oil prices shot above $100 a barrel earlier this year as Russia’s invasion of Ukraine exacerbated worries that a robust recovery in fuel demand from the coronavirus pandemic was outpacing producers’ ability to increase supply.
But prices have slid over the past month on concerns that global central bank monetary tightening to combat high inflation could trigger a recession that would damp oil demand. The price of Brent is down more than $20 a barrel since early June.
The surge in fuel prices, which is helping drive the highest inflation rates western economies have seen in decades, has prompted US and European leaders to call on global oil producers to increase supply, contradicting commitments to drive down carbon emissions and cut fossil fuel usage.
US president Joe Biden is set to visit Saudi Arabia later this month as he tries to repair relations with the kingdom, which he called a “pariah” after the murder of journalist Jamal Khashoggi. Biden has repeatedly called on the Saudis and others in the Opec+ alliance of oil producers to increase supply.
British prime minister Boris Johnson on Monday added to the calls for more crude output, telling the House of Commons that the Saudis “need to produce more oil, no question”.
US gasoline futures also fell sharply on Tuesday to their lowest level since late April, signalling a potential reprieve for motorists after petrol prices topped $5 a gallon last month.
The fall in the oil price sent big energy companies’ shares tumbling. Oil and gas stocks accounted for nine of the 10 biggest decliners in the S&P 500 index on Tuesday.
*The per cent decrease of West Texas Intermediate has been amended
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