Oil corrects sharply amid US recession fears

New pressure on black gold…

(Boursier.com) — New pressure on oil prices this Wednesday with Brent and WTI dropping around 4%. Growing concerns over the possibility of the US sliding into recession as the Biden administration prepares to step up its fight against high pump prices by calling for a gas tax holiday are weighing on prices black gold. Additionally, as investors fret over the impact of the sharp rise in interest rates, Federal Reserve Chairman Jerome Powell is due to testify before Congress this afternoon on his bid to rein in the inflation which has reached levels not seen for decades.

The US Federal Reserve struck a blow last week by raising its key interest rates in 28 years. It raised the “fed funds” rate by 0.75 points to bring it between 1.5% and 1.75%, in response to inflation which soared to 8.6% in May and could reach 9 % in the coming months. The boss of the Fed, Jerome Powell, did not rule out a new gesture of the same magnitude in July, while ensuring that such sharp increases would not be “usual”.

Concerns about a potential sharp slowdown in the United States, which could undermine energy demand, have increased in recent days after the Fed embarked on this very hawkish move. From Tesla boss Elon Musk to economist Nouriel Roubini and Goldman Sachs, warnings have been mounting for the past few days about the growing likelihood that the world’s largest economy will fall into recession. “We now consider the risk of recession to be higher and more significant,” wrote Goldman Sachs chief economist Jan Hatzius, for example. “The main reasons are that our baseline growth path is now lower and we are increasingly concerned that the Fed will feel compelled to react forcefully to high headline inflation and consumer inflation expectations if prices energy still increase, even if the activity slows down sharply”.

The White House has invited executives from seven refiners and oil companies to a meeting Thursday to discuss ways to increase production capacity and lower energy prices after the average retail price in the United States fell. surpassed $5 a gallon this month after rising more than 50% in 2022. According to ‘Reuters’ sources, Joe Biden is expected to seek temporary suspension of the 18.4-cent-per-gallon federal gasoline tax . “I think Biden’s relentless headlines, with the administration seemingly in inflationary panic mode, played a role in the latest pullback, as investors hate any uncertainty, even if it’s irrational in the context of the economic problems. known supply,” says Stephen. Innes, managing partner at SPI Asset Management.

On the bright side, Exxon Mobil warned this week that the crude market could remain tight for years to come, while Vitol Group, the world’s largest independent oil trader, reported rising fuel demand in China. At the same time, soaring margins are prompting refineries to buy every barrel of crude they can get. “Broader macroeconomic influences have recently dictated the direction of oil prices,” Warren Patterson, head of commodities strategy at ING Groep in Singapore, told ‘Bloomberg’. “However, fundamentally, the market still remains constructive.”

The barrel of American light crude WTI (August futures) is currently down 4.2% to $104.9 on the Nymex, while the Brent of the North Sea with the same August expiry returns 4% to $110.1 on the ICE.

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