Oil likely to fall to US$65 a barrel by end 2022

As the Bloomberg recession tracker rose to 38%, the price of oil has plummeted below US$100 a barrel, the first time since early May this year.

Citigroup is predicting that crude, which has soared as a direct result of Russia-Ukraine conflict, could fall to US$65 a barrel by year end.

While lower crude prices (theoretically) will lead to less pain at the pump, the surge in cost for natural gas (also made worse by the war) may do lasting damage to the global economy.

The fossil fuel has skyrocketed by 700% in Europe since the start of 2021. All of this is not helping when it comes to keeping Wall Street from panicking. But Mohamed A. El-Erian writes in Bloomberg Opinion that, while the first half of 2022 was excruciating for investors in stocks, corporate bonds, crypto and lots of other assets, there are a few silver linings to make you feel a little better.

Oil posted its worst trading day (July 05, 2022) in almost three months as recession fears gripped markets, outweighing a fundamentally tight supply market. 

West Texas Intermediate crude futures settled below U$$100 on Tuesday after falling more than 8%, the most since March 09, 2022.

Risk-off sentiment spread throughout markets on escalating concerns that a global economic slowdown will ultimately hobble demand.

Oil prices have been prone to violent swings as traders fled to the exits after Russia-Ukraine conflict started, drying up liquidity. The latest plunge came as equities slid and the US$ surged. Citigroup said that crude could fall to US$65 this year in the event of a recession.

Oil prices have been under pressure in the past month as central banks aggressively raise interest rates. Still, physical barrels are fetching enormous premiums.

Saudi Arabia hiked its official selling prices to Asia on Tuesday. Its flagship Arab Light crude price will be US$9.30 above its regional benchmark in August, an increase of US$2.80. 

“Crude oil prices have slumped as weakening demand concerns are starting to outweigh fears about tight supply,” said Fawad Razaqzada, market analyst at City Index.

“A growing number of analysts are expecting that many of the world’s leading economies will suffer negative growth in the next few months, and this will drag the US into a recession.”

While futures have been pressured by the threat of a global economic slowdown, key market time-spreads remain robust, indicating that there’s solid demand for near-term supplies. A strike in Norway and supply disruption in Libya has exacerbated that strength of late.