Recession fears are affecting the oil market, with crude prices falling below $80 a barrel on Friday for the first time since January.
The good news is that the sell-off will boost price at gas pump reduced, defuse inflation that is harming consumers. The bad news is that the sharp drop in oil prices is proof that investors are increasingly worry about the direction of the economy.
Oil fell 5.7% to $78.73 a barrel on Friday – its lowest intraday since Jan.
Investors are concerned about the Federal Reserve’s campaign to control inflation by implementing punitive interest rate hikes aimed at slowing the US economy.
“They are deliberately driving this economy toward a recession,” said Robert Yawger, vice president of energy futures at Mizuho Securities.
Markets are betting that the Fed’s rate hike – the latest of which came earlier this week – will affect energy demand by causing people to drive and fly less and businesses to consume less energy. than.
“The Fed rate hike is killing demand for everything, especially energy,” Yawger said.
Gasoline prices were down for 98 straight days through Wednesday when they inched higher. The national average for regular gasoline amounted to $3.69 a gallon on Friday, according to AAA. This is far below the June 14 peak of $5.02 a gallon.
The slump in energy markets is being fueled in part by a surging US dollar, which continues to rise against rival currencies as investors flock to safe havens. That strength tends to be negative for oil – priced in dollars – as it erodes the purchasing power of foreign buyers.
“This is the market that says, ‘If we go into a recession, we’re going to rush into the dollar and sell everything else.’ Michael Tran, commodity strategist and digital intelligence at RBC Capital Markets, said oil is on the hook for this.
Oil prices are now down about 40% since a brief $130/bbl drop in March as investors bet the war with Ukraine would hurt Russia’s oil exports. Concerns about oil supply from Russia have proven overdue as the country continues to send crude oil abroad.
The Biden administration never had emergency oil release from the national stockpile also contributed to the oil sell-off.
“Without a doubt, that helped. That’s one reason we’re not at $130 anymore,” said Yawger.