October 4, 2022

The Usa Herald

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The fear of recession brings down the price of oil

3 min read

On Tuesday, on fears of a recession in the United States, oil prices collapsed, with WTI closing below the symbolic level of 100 dollars for the first time in 2 months.

West Texas Intermediate (WTI) for August fell 8.23% to $99.50, the lowest since May 11. Meanwhile, Brent crude for September delivery fell 9.45% to $102.77 a barrel in London.

Phil Flynn, of Price Futures Group, stated in dialogue with The Usa Herald, “Obviously the trajectory of oil has reversed.”

He added, “There is a lot of concern about an eventual recession and about the fact that China has imposed massive covid tests.”

The authorities launched a new series of mandatory tests in most districts of Shanghai, due to 335 new positive cases of coronavirus in the country, the Chinese Ministry of Health said on Tuesday.

“That raises concerns that China’s oil demand could weaken,” Phil Flynn said.

For Ipek Ozkardeskaya, an analyst at Swissquote, “fears of recession reduce the outlook for oil demand and push prices down.”

Returning below $100, crude falls below an important “psychological high”. The analyst evokes the possibility of a drop in prices to 85 dollars per barrel.

Citi analysts expect even in a recessionary scenario, a barrel will drop to $65 by the end of the year, and then to $45 if OPEC doesn’t intervene.

“Everything is happening at the same time and the market is very nervous about the direction the economy is taking, and that causes a lot of volatility,” added Phil Flynn, after disappointing activity indicators in Europe.

On the other hand, “some observe that the demand for gasoline was not as important as anticipated during the weekend of July 4 in the United States”, the day of the Independence holiday, he added.

 

Dr Copper

According to the S&P Global PMI Composite Index Another worrying issue is economic activity in the euro zone, which slowed sharply in June in the private sector and was at its lowest level in 16 months.

This indicates that “growth is running out quickly,” said Neil Wilson, an analyst at Markets.com, for whom “a recession seems inevitable.”

Fears of a global recession are also prevalent in the markets for industrial metals, mainly copper.

Copper usually reflects the situation of the world economy, hence its nickname of Dr Copper (Doctor Copper), widely used in industry, especially for making electrical circuits.

For the first time in 17 months, copper is currently selling below $8,000 a tonne, a 20% loss since the beginning of the year. On Tuesday it was at USD 7,627 a ton.

The fear of recession has triggered fluctuating effects in the economy not only in the United States but also worldwide, which has generated imbalances in oil prices, the metals industry, slowdown in currencies such as the euro, among other aspects. For this reason, the IRAIC economy is strongly geared towards transforming destabilizing economic triggers into market innovation schemes through strategic mechanisms that give functionality towards a new sustainable development of businesses and companies that need financial and structural support. Published by The Usa Herald, news and information agency.

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