Oil Retreats On Recession Concerns

Oil retreated to its lowest level in over a month amid growing concerns that a global economic slowdown could eventually turn into limp demand.

Brent crude is down by -1.48% and trades at $110. WTI slipped 3% to settle around $106 per barrel. Federal Reserve Chair Jerome Powell made his most explicit acknowledgment to date before lawmakers, on Wednesday, that steep rate hikes could tip the economy into recession.

US President Joe Biden called on Congress to suspend the federal gasoline tax, a move that could bring mixed results. Crude whipped back and forth as the Fed’s commitment to taming inflation has shaken the confidence of investors using crude as an inflation hedge.

Market liquidity is challenged as volatility has also taken its toll on traders and investors alike, leaving crude susceptible to massive swings. Oil’s price has spiked since Russia’s invasion of Ukraine in late February caused a liquidity crisis in the oil market as investors are required to put down more cash to cover their trades.

Futures holdings are at the lowest since 2016, leaving headline prices prone to outsized swings. WTI fell below its 100-day moving average early on Wednesday for the first time since January, adding technical pressure to an already fragile market.

Wednesday’s slide comes alongside other commodities also losing ground, as well as some risk assets. Copper and iron ore also declined. An additional headwind for crude prices came from the rising dollar, which makes imports more costly for holders of other currencies.

Citigroup Inc. said that it expects further declines in oil into the end of the year, but added that it is set to be a volatile downtrend.