Oil prices fell to their lowest level in 12 weeks in volatile trading today, Wednesday, to extend the huge losses that they suffered on Tuesday, as growing fears of a collapse in demand were overshadowed by Global recession expected as investors worried about supplies.
Brent crude futures for September delivery fell $2.99, or 2.9%, to $99.78 a barrel, and West Texas Intermediate crude fell $3.19, or 3.2%, to $96.31.
This drop puts both crudes on the way to recording their lowest levels since April 11, after Brent crude fell 9% and West Texas Intermediate fell 8% on Tuesday, according to Archyde.com.
Investment bank Goldman Sachs said the rapid oil sell-off was being driven by growing recession fears.
US stock market indices fell today, Wednesday, as investors awaited the minutes of the Federal Reserve’s meeting to assess the safety of economic indicators and the pace of raising interest rates in order to curb high inflation.
Oil prices also fell due to the rise in the value of the US dollar, as the US currency index rose to its highest level in nearly 20 years against a basket of other currencies.
The strong appreciation of the dollar makes it more expensive to buy oil for holders of other currencies, which may limit demand.
And in China, the world’s largest oil importer, there was concern that new lockdowns linked to the COVID-19 pandemic could reduce demand.
Iran has said it wants a strong and lasting nuclear deal with major powers, after talks with Qatar, a US ally, about revitalizing stalled efforts to revive the 2015 nuclear deal.
Analysts said that reviving the nuclear deal with Iran could add about 1 million barrels per day of Iranian crude to global supplies.
Trading witnessed a noticeable volatility on Wednesday, as both crudes rose by more than $2 a barrel earlier in the day due to supply concerns.
In an interview with Al-Arabiya, CEO of CMarkits London, Youssef Al-Shammari, said that fears of economic recession and high levels of interest rates in the United States raised concern in the oil markets, and caused price declines.
Al-Shammari expected that global demand for oil in 2023 and 2024 may be affected, as the world witnessed an economic slowdown.
He continued, “I am inclined to the Citibank report, which suggests a drop in prices,” expecting prices to drop to about $80 a barrel if the economic slowdown continues, in addition to the OPEC Plus alliance continuing to increase production.
Al-Shammari stated that there is a shortage of supplies of more than two million barrels in the markets, but fears of economic stagnation are increasing in the markets, which is disrupting demand.
He pointed out that the current electricity crisis will be the biggest compensation for it from the coal sector, while the oil sector will benefit from the high demand for jet fuel in the summer.
Al-Shammari expected prices to drop to range between 95 and 100 dollars per barrel, and this will be determined according to OPEC Plus supplies. If its production increases, prices may fall at a greater rate.
He believes that the drop in prices on Tuesday’s session was due to the panic among traders after reports issued by international investment banks, amid expectations that prices would reach 40 and 65 dollars per barrel, while other banks expect prices to reach 380 dollars.