Oil dropped below $100 a barrel, with Goldman Sachs Group Inc. saying that a plunge driven by fears a recession will hurt demand was overdone.
West Texas Intermediate fell as much as 3.59% to trade around $95.96 a barrel. Brent crude fell 3.12% to trade around 99.65 on Tuesday a barrel, its third-largest ever in dollar terms. Meanwhile, Citigroup Inc.’s Ed Morse said the outlook for oil demand will likely see further downward revisions amid higher fuel prices.
While that drop was borne out of concern of a global recession and technical selling, there’s been little change to market fundamentals. Nearby Brent futures are trading at a giant premium to later months -- indicating market strength -- while disruption to global oil production has been mounting, amid a risk to Kazkahstan’s oil exports.
“While the odds of a recession are indeed rising, it is premature for the oil market to be succumbing to such concerns,” Goldman Sachs analysts including Damien Courvalin said in a note. “The global economy is still growing, with the rise in oil demand this year set to significantly outperform GDP growth.”
Oil has opened the third quarter on volatile footing. With central banks including the Federal Reserve hiking interest rates to tame inflation, investors have been pricing in the consequences of a slowdown, even as physical crude markets continue to show signs of vigor and the war in Ukraine drags on.
A strengthening dollar has also been a headwind for commodities this week, as a gauge of the US currency rallied to the highest level in more than two years, with investors shying away from risk. A rising dollar makes raw materials like oil more expensive for holders of other currencies.