The prices of oil plunged by roughly 9% on Tuesday, which is the biggest daily drop observed since March, due to growing fears of a global recession and lockdowns in China that could reduce demand.
Specific prices were at $102.77 per barrel for global benchmark Brent crude, which is a $10.73, or 9.5% drop in price. On the other hand, U.S. West Texas Intermediate (WTI) lost 8.2% or $8.93 to settle at $99.50 per barrel. There was no settlement for WTI on Monday due to it being a U.S. holiday.
Lowering Gas Prices
Both benchmarks logged their biggest daily percentage drop since Mar. 9 and hit share prices of major oil and gas companies. In a statement, the director of energy futures at Mizuho, Robert Yawger, said that they were "getting creamed, and the only way you can explain that away is fear of recession."
Similar to natural gas, gasoline, and equities, which often serve as a demand indicator for crude, oil futures also sank. On the other hand, mass COVID-19 testing in China fueled fears of potential lockdowns that threaten to deepen cuts to oil consumption, as per Reuters.
In a statement, Shanghai authorities said they would start new rounds of mass testing of the roughly 25 million residents of the city over a three-day period. They cited an effort to trace infections linked to an outbreak that was discovered at a karaoke bar.
The senior vice president for trading at BOK Financial, Dennis Kissler, said that the world was seeing what he called "panic liquidation" due to nervousness about global situations. There have been concerns that U.S. summer driving season demand would drop after the Fourth of July holiday which also weighed on the market.
According to Business Insider, despite the drop in price, the price of oil is still relatively high in some markets. On Tuesday, Saudi Arabia's state-run producer said that it would increase prices next month for its Asian buyers.
International Situation
Based on AAA data, for 21 consecutive days, the prices of gasoline have been on the decline, which is considered their longest losing streak since April 2020 in the early days of the COVID-19 pandemic.
In the United States, the average gas price is $4.8 per gallon, which is a decrease from last week's $4.881 per gallon but still a big jump from the year-ago average of $3.134. The recently observed market trends also provide United States President Joe Biden with a little leg room as he faces limited policy options on lowering fuel costs.
The Democrat's recent proposal to suspend the federal gas tax was quickly dismissed by other lawmakers. Furthermore, the oil industry has been focused on returning capital to shareholders, despite Biden's calls for companies to ramp up investment and production quicker.
Some experts are warning that Americans are getting a little bit too excited ahead of the summer driving season due to dropping gas prices. Andrew Gross, a spokesperson for AAA, said in a Tuesday blog post that domestic gasoline demand recently dipped, taking some pressure off of pump prices. He noted that roughly 80% of stations were now selling regular for under $5 per gallon, Newsweek reported.
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