The price of a barrel of oil fell to its lowest level since February on Thursday, as investors respond to growing fears that a looming recession will drastically reduce demand for energy.
A barrel of West Texas Intermediate was changing hands at less than $88 a barrel at one point on Thursday, a level it has not traded at since early February
That was before Russia’s invasion of Ukraine, which pushed oil prices to their highest level in years on fears of a wider war, and sending countries scrambling to replace sanctioned Russian crude.
After peaking at nearly $140 a barrel in March, oil has been sliding steadily lower ever since, but Thursday’s sell-off was sparked by new data out of the U.S. showing Americans are driving less this summer than they were even two years ago, during 2020 pandemic lockdowns.
Rory Johnston, founder of Commodity Context, says gas prices are still trying to stabilize from the unprecedented spike in demand seen earlier this year.
“For a big chunk of the summer, gasoline prices were ripping higher and higher or higher and people were … stocking up because they didn’t know how high it was going to go,” he said in an interview. “Now it’s turned around and prices are falling really quickly.”
Gasoline is one of the main uses of oil, so prices for crude are falling just as they are at the gas pump. But oil is also being driven lower as more and more economic data suggests the global economy is slowing and may go into a recession, which will reduce demand for energy.
“What we’re seeing is definitely the entire oil market kind of swooning on some of these concerns,” Johnston said.
OPEC to boost output
Martin Pelletier, portfolio manager with Wellington-Altus Private Counsel, says there are valid reasons to be worried about a recession, but ultimately he thinks the outlook is more likely to surprise to the upside than to the downside.
He noted that this week, oil cartel OPEC agreed to boost its production by 100,000 barrels a day, something it would not have done if it thought the market was poised to plunge.
“OPEC has a really good understanding of global oil markets, they’re actually increasing their price and output,” he said in an interview. “But that $90 number has raised concerns about the direction of oil from here.”
Johnston says oil’s current fall can be viewed as good news or bad news, depending on your perspective.
“The silver lining is definitely cheaper gasoline [but] the storm cloud on the other side of that lining is potentially lower gas prices because the economy is weakening.”