The price of West Texas Intermediate crude oil fell as much as 10 percent on Tuesday. Brent crude fell more than 10 percent as it hit a low of $101.10 a barrel for the day before closing at $102.77.
It marks the first time the WTI has fallen below $100 ($147) since May 11. That was also the last time Brent, which tends to trade slightly higher, was below $102 a barrel. Brent hasn’t been below $100 ($147) since April 25.
Wholesale gas futures also fell, nearly 10 percent lower for the day at the close, or 36 cents a gallon.
Rising fears of a recession are the main driver of the latest sell-off in oil and gasoline futures, said Tom Kloza, global head of energy analysis at OPIS.
Until recently, investors in oil and gasoline believed that there were few market forces to keep prices in check in the short term. “There is now a perceived huge downside risk associated with recession risk,” he said.
In recent weeks, fears of a recession have increased, contributing to a sharp drop in oil prices. Brent was at $123.58 a barrel on June 8, while WTI was at $122.11.
But since that spike, the consumer price index has shown consumer prices hit their 40-year high, one of the key metrics that prompted the Federal Reserve to raise interest rates by three-quarters of a percentage point as a way to combat that price pressure.
That has raised expectations that the central bank’s aggressive measures to cool the economy could cause job losses and a recession.
Oil and gas prices rose earlier this year after the Russian invasion of Ukraine prompted the United States and its European allies to sanction Russian energy exports, effectively choking one of the world’s largest producers.
But the supply of oil is only part of the equation traders consider when bidding on oil futures. The question is the other part. And nothing kills demand like a recession, which reduces overall economic activity. When people are laid off, fewer people drive to work or to the store or other destinations.
The last time gas hit an all-time high was during the Great Recession, when the national average reached $4.11 a gallon in July 2008. But by the end of that year, it had fallen 60 percent to $1.62 a gallon. gallon, while demand fell. But cheap gas offered little comfort to the nearly 3 million people who lost their jobs in those five months.
So far, motorists have seen relatively little relief at the gas station from the recent decline in the oil and gasoline futures. The national average price of gas has fallen just 4 percent, or 22 cents, since its record June 14, while wholesale gas futures are down 22 percent.
US gasoline retailers have little incentive to cut prices further with strong demand for gasoline with the summer driving season in full swing.
“There is no compelling reason for retailers to lower their price further with this strong demand,” said Kloza.
There could be more price drops at the pump in the near term — a drop of another 10 cents a gallon over the next week or so wouldn’t be a surprise, Kloza said. Station owners who pay less for wholesale gas will look at how much of the savings their competitors pass on to customers before setting their own prices. But the phrase that gas prices rise like a rocket and fall like a feather is likely to come true again, Kloza said.
There probably won’t be any major drops until schools reopen and the summer riding season ends this fall, he predicted. There are also risks that further developments in Russian oil exports linked to the war in Ukraine or hurricanes hitting US oil infrastructure along the Gulf Coast could cause prices to rise again rapidly.
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