Slowing demand and recession fears helped bring the
benchmark U.S. oil price below $100 a barrel Tuesday,
continuing a rapid turnaround
from soaring levels in recent
months.
Oil prices shot higher earlier this year as war in
Ukraine disrupted supply
lines and the world-wide
postpandemic reopening
lifted demand. That move has
contributed to the persistent
inflation that has gripped major economies in 2022. The
growth outlook is darkening
as central banks work to get
inflation under control by
cooling economic activity,
pulling down traders’ forecasts for oil demand.
West Texas Intermediate,
the U.S. standard, finished
down $8.93, or 8.2%, to
$99.50 a barrel, its first close
below $100 since early May
and its largest one-day percentage decline since April.
Contracts for Brent crude, the
international benchmark,
dropped $10.73, or 9.5%, to
$102.77 Brent futures were trading
above $120 a barrel, with
global supply pressured by
fallout from Russia’s invasion
of Ukraine.
The pain also touched energy-sector stocks, which lost
about 4% on Tuesday, the
steepest decline of any of the
S&P 500’s 11 sectors. The
broad-market index was up
0.2%. The Dow Jones Industrial Average lost 0.4%, while
the tech-focused Nasdaq
Composite Index advanced
1.8%, reversing earlier losses,
in the first trading day of a
holiday-shortened week.
The war in Ukraine shows
no immediate signs of winding down, but traders’ attention is shifting to the possibility that a downturn in
economic growth could cool
demand for fuel.
Consumer spending and industrial orders showed signs
of slowing in data released
last week, underscoring investors’ building concerns
about the possibility of a recession.
Average gasoline prices
across the U.S. have retreated
to $4.80 a gallon, off records
above $5 a gallon that drivers
saw last month, according to
AAA. Gasoline is still more
than 50% higher than a year
ago, however, leading drivers
to cut back.
More broadly, some crudeoil traders are feeling the
weight of negative sentiment
that is touching a range of
commodities as the economic
outlook dims, said Jim Ritterbusch, president of oil-advisory firm Ritterbusch & Associates. S&P’s broad index of
commodity prices was down
6.1% on Tuesday.
“The acceleration of recession expectations in the sec ond half of the year has
weighed on a slew of commodities, and oil has gotten
swept up in that to a large extent,” Mr. Ritterbusch said.
Declining prices are forcing
some traders to unwind bullish bets on crude, he added,
exacerbating the selloff.
Some energy traders have
zeroed in on indications that
gasoline demand is already
tempering. On a four-weekaverage basis, demand was
down about 2% year over year
through June 24, according to
the federal Energy Information Administration.
At the same time, oil companies have gradually responded to $100-a-barrel
prices by moving to increase
production, a process that
could see more crude reaching
markets later this year, further
easing prices, said Louise
Dickson, an analyst at Rystad
Energy. Rystad has raised incrementally its forecast for
U.S. crude production for the
months to come, she said.
A stronger dollar has been
another factor weighing oil
prices down in recent sessions. The dollar has continued its climb against other
major currencies, rising to
near its highest value versus
the euro in two decades.
When dollars become more
expensive for foreigners, so
do commodities trades denominated in U.S. currency.