Crude oil prices fell again on Monday, hitting a nine-month low as the global economy continued to contract, the lockdown in China continued and gasoline demand in the United States waned.
West Texas Intermediate crude prices hit a low of $76.79 a barrel, as the decline was exacerbated by a stronger US dollar. West Texas Intermediate, the US benchmark for crude oil prices, fell 2.65%, while Brent crude futures, the international oil standard, fell 2.4% to $84.05 a barrel.
Recession fears affect oil prices
Fears of a recession pushed crude oil prices further down, the lowest since January.
US oil production has recovered to levels close to pre-pandemic levels, and the increased likelihood of an economic downturn in the US has contributed to the recession, said Bernard (Budd) Weinstein, retired associate director of the Maguire Energy Institute at Southern Methodist University in Dallas, said TheStreet.
He said China’s sluggish economy has reduced the country’s imports of fossil fuels and the European economy, which is already in recession, is one of the main factors.
Weinstein said it was unlikely that crude oil prices would fall “much more because the European Union has pledged to stop buying Russian oil by the end of the year.” “However, prices that are about 50 percent below their peak at the beginning of the Russian-Ukrainian conflict will seriously damage the Russian economy, which depends almost exclusively on oil and gas revenues to fund government spending, including their war efforts.”
The US dollar is getting stronger
The dollar index reached a two-decade high against a group of six currencies, adding pressure on crude oil as it is priced and sold in US dollars.
“The futures market is trying to price the global slowdown with some demand destruction” as the summer driving season ends, Art Hogan, chief market strategist at B Riley Financial, told TheStreet.
He said oil prices are facing headwinds with the strength of the US dollar, adding downward pressures, reflecting commodities such as precious metals such as gold.
“The US dollar is up 25% this year — strength is taking a toll on multinationals,” Hogan said.
We have never seen a stronger dollar with the US. pursue a more aggressive monetary policy.”
And energy markets have never lost track of Russia’s oil production since selling its supplies to India and China.
Hogan said China’s demand for energy products since the country implemented its zero-virus lockdown has led to lower demand compared to before the pandemic began as it “hasn’t reopened in earnest.”
Tighter monetary policies affect prices
Anthony Chan, former chief economist at JP Morgan Chase, told TheStreet that global markets are experiencing a simultaneous monetary tightening by several central banks, which means slowing global economic growth and lower oil prices.
The Federal Reserve revised its real GDP growth estimates to 0.2% and 1.2% for 2022 and 2023, respectively.
Chan said oil prices will face downward pressure as long as the US dollar remains strong.
“With major central banks continuing to raise interest rates or keeping them at high levels, oil prices could fall further,” he said.
He said prices could drop further if Russia’s oil supplies continued to “go towards China and India at discounted prices.”
“Only if Russia cuts the taps more or escalates its conflict, will we see oil prices reverse into a downward spiral,” Chan said.
Petrol prices have risen slightly by an average of 3.2 cents per gallon over the past week, said Patrick de Haan, head of petroleum analysis at Boston-based GasBuddy, ending a 14-week streak of record declines, the longest since 2015. Supplier Retail fuel pricing information and data. The average price of gas in the United States is $3.49 a gallon, up $0.05 from last week and about $0.18 below the national average.
Prices rose despite lower crude oil prices because several refinery releases throughout the West Coast, Pacific Northwest, Great Lakes and Plains led to supply challenges.
“A series of unexpected disruptions at the refineries, including fires and routine maintenance, apparently all occurred in a short period of time, driving up wholesale gas prices in those areas,” he said. “Some of these areas may see price hikes of 25-75 cents a gallon or more until the issues are resolved.”
Refineries in the Northeast and the Gulf Coast did not face any obstacles and gasoline prices fell in those areas.
“The disconnection between regions is increasing, and is likely to remain abnormal over the next few weeks until the refinery problems are brought under control and corrected,” de Haan said.
Some refineries may experience “limited disruption” as Hurricane Ian approaches the US coast, leading to mandatory evacuations in some areas of Tampa on September 26.
He said, “As a precaution, GasBuddy has activated a fuel availability tracker for motorists in Florida, Georgia, Alabama and South Carolina. Hopefully the disruptions will be very limited due to Ian, but there are still many factors driving prices up across the country.”