Oil extended its drop for a second day as fears of a global slowdown outweighed continued supply disruptions and market tightness.

West Texas Intermediate settled below USUS$100 after trading in a USUS$7 range on Wednesday. The two-day decline comes as concerns over an economic recession, as well as months of dwindling liquidity, undermine the idea of oil being used as a hedge against inflation. Meanwhile, Citigroup Inc.’s Ed Morse said the outlook for oil demand will likely see further downward revisions amid higher fuel prices. 

“Almost everybody has reduced their expectations of demand for the year,” Morse said in a Bloomberg Television interview Wednesday. 

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 Russia’s war in Ukraine drags on.

While this week’s price weakness has been borne out of concern of a global recession and technical selling, there’s been little change to 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 crude exports.


  • WTI for August delivery fell 97 cents to settle at US$98.53 a barrel in New York.
  • Brent for September settlement dropped US$2.08 to settle at US$100.69 a barrel.

“While the odds of a recession are indeed rising, it’s premature for the oil market to be succumbing to such concerns,” Goldman Sachs & Co. 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.” 

In China, there are signs of rising demand as the world’s biggest importer emerges from virus lockdowns. Overall consumption of gasoline and diesel last month was at almost 90 per cent of June 2019 levels, according to people with knowledge of the energy industry.