Meanwhile, Washington's proposal to suspend the gas tax is widely criticized: File Image/Pixabay
Analysts in the previous session said tight fundamentals virtually guaranteed rising crude prices, but on Wednesday fears of a U.S. recession at least temporary put the brakes on the upward trajectory, and prices fell to their lowest in over a month.
After Jerome Powell, chair of the Federal Reserve, warned that steep rate hikes could trigger a recession, West Texas Intermediate fell $3.33 to settle at $106.19 per barrel; Powell also said that achieving a soft landing for the economy without a recession has become "significantly more challenging."
WTI early on Wednesday also fell below its 100-day moving average for the first time since January, adding technical pressure to the market.
Jason Furman, Harvard University
I don't think any expert thinks this is a remotely good idea
Copper and iron ore declined on Wednesday as did equities, and accordingly Brent for August settlement fell $2.91 to settle at $111.74 per barrel, and this caused Rebecca Babin, senior energy trader at CIBC Private Wealth Management, to remark that "Market liquidity is challenged as volatility has also taken its toll on traders and investors alike, leaving crude susceptible to massive swings."
Ironically, despite the high prices, Jared Dillian on Wednesday wrote in a story for Bloomberg that WTI's 22 percent drop over the past two weeks meets the technical definition of a bear market.
Dillian, who is an investment strategist at Mauldin Economics, went on to note that this is good news: "If the price of oil falls so will inflation rates, as oil is a primary driver of inflation; and if that happens, the Fed won't have to raise interest rates as much, resulting in lower bond yields…the price of oil is driving all markets and the economy at the moment, and if oil prices go down, everything will get better."
Dillian also pointed out that while miles driven in the U.S. measured on a rolling 12-month basis had mostly returned to the pre-pandemic highs, that "does not take into account the number of miles driven by electric vehicles, which is rising sharply…we are consuming even less gas than we think we are."
Still, the political push in Washington is to get prices lowered somehow, but following non impactful sales of emergency reserve stockpiles U.S. president Joe Biden's latest scheme, to temporarily suspend the federal gas tax, is being given the cold shoulder by the analytical community.
After Biden called on Congress on Wednesday to suspend the tax, critics pointed out that although the break might provide temporary relief it could also keep demand elevated, thereby exacerbating tight supply.
Jason Furman, professor of economic policy at Harvard University, said, "When refineries are already stressed to capacity the additional demand that the gas tax holiday will unleash will manifest itself almost entirely in the form of higher prices for producers instead of savings for consumers.
"I don't think any expert thinks this is a remotely good idea."