Oil Dips Below $100 As Recession Fears Grip Traders

Conversely, Saudi Arabia warns that the energy market is running out of capacity: File Image/Pixabay

Oil prices took another nosedive on Tuesday, this time to below $100 per barrel on concerns that inflation rates will soon lead to a recession – causing some analysts to suggest that crude may have finally topped out.

Trading was also affected by Li Keqiang, premier of China, warning of a “complicated and grave” employment situation as government Covid lockdowns intensify in Beijing and Shanghai.

West Texas Intermediate fell $3.33 to settle at $99.76 per barrel, while Brent declined $3.48 to settle at $102.46 per barrel.

Fawad Razaqzada, a market analyst with City Index and FOREX.com, said, “Crude oil may have finally topped out; I know that is a brave call to make and shorting oil is playing with fire given geopolitical risks.”

He added that the recent pullback should have encouraged another round of buying but hasn’t to date – a possible indication of a new, lower price range whereby crude meets resistance based on chart technicals.

John Kilduff, founding partner at Again Capital, cited the European Union softening its stance on proposed bans against Russia as another influence on traders: “As the EU continues to dither over whether or not they are going to embargo that Russian oil, that changes the calculus very much as well in both directions.”

While concern over the economy – and demand – has clashed with strong signs of a bull market and caused unprecedented volatility, the ongoing irony is that strong demand persists despite adversity such as inflation – to the point where Saudi Arabia’s oil minister warned that the entire energy market is running out of capacity.

Also, signs that U.S. crude output growth is slowing caused the Energy Information Administration to cut its forecast for domestic oil production to 11.9 million barrels per day (bpd) this year, compared to a previous estimate of 12.01 million.

This was accompanied by Suhali Al Mazrouei, energy minister for the United Arab Emirates, stating on Tuesday that lack of investment is catching up with members of the Organization of the Petroleum Exporting Countries (OPEC), and no member can unilaterally increase production faster.

Meanwhile, U.S. crude stocks rose by 1.6 million barrels for the week ended May 6, according to sources citing American Petroleum Institute data, while analysts polled by Reuters had expected a draw of 500,000 barrels.