Fear of Economic Recession Causes WTI to Fall Below $100... Dollar Strengthens

[Asia Economy New York=Special Correspondent Joselgina] International oil prices plunged sharply on the 5th (local time) amid growing fears of a global economic recession.

On this day at the New York Mercantile Exchange (NYMEX), August delivery West Texas Intermediate (WTI) crude oil closed at $99.50 per barrel, down 8.2% ($8.93) from the previous trading day. This is the first time WTI prices have fallen below the $100 per barrel mark since May 11 ($99.76).

At 7:47 p.m. London local time, September Brent crude oil on the London ICE Futures Exchange was trading at $102.51 per barrel, down 9.7% ($10.99).

This decline is due to growing concerns that the possibility of a recession will reduce future energy demand. In the bond market, an inversion of yields between 2-year and 10-year government bonds, often interpreted as a precursor to recession, has occurred. Recently, several indicators suggesting a slowdown in economic growth in the United States have been released.

Citigroup stated in a report on this day that if the economy falls into a recession, Brent crude oil prices could slide to $65 per barrel by the end of this year. Citigroup predicted, "In a recession scenario where unemployment, household, and corporate bankruptcies increase, commodities will decline."

Ritterbush & Associates also noted in their report that "the oil market seems to be focusing recently on weak demand for gasoline and diesel," attributing this to the strong possibility of a recession. The average gasoline price in the United States, which once surpassed $5 per gallon, has also recently declined slightly. According to the American Automobile Association (AAA), the national average gasoline price on this day was $4.80 per gallon, easing from $4.881 a week ago.

Additionally, the value of the US dollar has surged to its highest level in 20 years, acting as a headwind for commodity prices traded in dollars. The Dollar Index, which measures the value of the dollar against six major currencies, surpassed 106, marking its highest level since November 2002.

Not only crude oil but also futures prices for major commodities including metals and grains mostly declined on this day. At the New York Commodity Exchange, August delivery gold closed at $1,763.90 per ounce, down 2.1% ($37.60) from the previous day, marking the lowest closing price this year. September delivery silver also plunged 2.8%, reaching its lowest level since July 2020.