Oil prices plummet as recession concerns mount

Oil prices plummeted on Tuesday on increased recession concerns. WTI price dropped below the $74 per barrel support, touching $71.5 per barrel. If the WTI price declines, it may encounter further support near $65 per barrel, while resistance may be found near $79.2 per barrel.

Oil prices tanked on Tuesday, as global economic concerns outweighed support from new OPEC+ supply cuts. OPEC+ producers recently decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis. 

Fears of a slowdown in the U.S. economy put pressure on oil prices. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. US Treasury Secretary Janet Yellen in a letter to the US Congress warned that the office would not meet all US government obligations by June 1. Mounting fears of a US debt default drove oil prices down on Tuesday.

Global economic concerns are weighing oil prices down, as the Fed rate decision looms. The Federal Reserve raised interest rates by only 25 basis points at its meeting in March, bringing the benchmark interest rate to a target range of 4.75% to 5.00%. Market odds are currently in favor of another 25-basis point rate hike at the Fed’s next meeting on Wednesday. 

The potential of a banking sector meltdown has reduced the oil demand outlook, as recession concerns mount. First Republic Bank announced last week that its deposits fell 40% in the first quarter of this year and its stocks went into freefall. This raised an alarm in the banking sector, pushing oil prices down. First Republic collapsed on Monday but was bought by JPMorgan after US regulators invited other banking institutions to step in. On Tuesday, the stock prices of two more banks plunged. Fears of a banking sector meltdown are returning, diminishing the oil demand outlook.

Weak Chinese manufacturing data pushed oil prices this week. Chinese manufacturing PMI dropped to 49.2 for April from 51.9 in March, missing expectations of 51.4. Non-manufacturing PMI dropped to 56.4 in April from 58.2 in March versus 57.0 anticipated. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. 

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Written by:
Myrsini Giannouli

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