Oil prices continued to decline this morning across both major benchmarks, weighed down by the growing risk of a recession and the expectations of further interest rate hikes across major economies.
Brent Crude dropped 0.99 per cent to $110.60 per barrel while WTI Crude fell 1.02 per cent to 105.10 per barrel – following heavy drops earlier this week that saw prices slide nearly $10.
They are now at their lowest level since mid-May – with prices slipping from $120 since the start of June amid concerns over supply shortages, with capacity issues reported across OPEC producing countries.
However, investors are now increasingly concerned demand could be hit by central banks as the world economy teeters on the brink of a recession, as they attempt to curb inflation with interest rate increases.
The US Federal Reserve chief Jerome Powell said on Wednesday the central bank was not trying to engineer a recession to stop inflation but was fully committed to bringing prices under control even if doing so risked an economic downturn.
The central bank is set to deliver another 75-basis-point interest rate hike in July, followed by a further half-percentage-point rise in September – with rates now at 40-year highs of 1.5-1.75 per cent.
Nevertheless, oil prices remain historically elevated above the $100 milestone, after eight years of trading below the century mark – with tight markets powering rallies this year.
Russian President Vladimir Putin warned Europe yesterday Russia was in the process of rerouting its trade and oil exports towards countries from the BRICs group of emerging economies in the wake of Western sanctions over Ukraine.
China’s crude oil imports from Russia in May were up 55 per cent from a year earlier, with volumes from Russia at record levels.
Meanwhile, India has provided safety certification for dozens of ships managed by a subsidiary of top Russian shipping group Sovcomflot, according to news agency Reuters.
This will permit oil exports to India and elsewhere, after Western certifiers withdrew their services due to global sanctions against Moscow.
India has refrained from condemning Russia given its longstanding security ties, and instead has sharply boosted Russian crude oil purchases in recent months – spotting an opportunity for discounted crude to meet its vast consumption demand.
Prior to the Russia’s invasion of Ukraine ,Indian refiners rarely used to buy Kremlin-backed oil due to high freight costs.
However, Russian grades accounted for about 16.5 per cent of India’s overall oil imports in May, compared with about one per cent in all of 2021.
Meanwhile the US Energy Information Administration has revealed its weekly oil data, which was scheduled for release on Thursday, will be delayed due to systems issues until at least next week.