23.06.202223:41 Forex Analysis & Reviews: Oil prices continue to fall, because a recession is almost inevitable

Oil prices continue to fall due to expectations of a global economic slowdown, which intensified after the speech of US Federal Reserve Chairman Jerome Powell. Oil quotes accelerated their fall on Wednesday evening, approaching the lowest levels over the past six weeks.

August futures for Brent oil on London's ICE Futures exchange traded at $109.69 per barrel on Thursday, that is, 1.83% lower than the final price of the previous session. The cost of futures for WTI oil for August in electronic trading on the New York Mercantile Exchange fell by 1.92% to $104.15 per barrel.

Powell, speaking the day before at the Senate Banking Committee, said that the struggle of the US central bank with exorbitantly high inflation in the country implies another rise in bank rates. The Fed's goal is 2% per annum on consumer spending price indices (PCE Price Indices). Recall that consumer prices in the US rose by 8.6% in May compared to the same period last year. Last week, the central bank raised the key rate immediately by 0.75 percentage points, that is, to the range of 1.5-1.75% per annum. During a press conference at the meeting, Powell hinted that the rate could be raised again by 0.75 percentage points in July.

During his speech, he noted that the US economy is strong enough to withstand further increases in interest rates, but added: "Frankly, the events of the past few months around the world have made it difficult for us to achieve what we want, which is - two percent inflation. And he also warned: "Inflation has clearly risen unexpectedly over the past year, so further surprises are possible."

Other leading American economists began to talk more and more about a recession in the United States, and the former president of the Federal Reserve Bank of New York, Bill Dudley, even said that an economic decline is inevitable in the country over the next 12-18 months.

Obviously, the prospect of a serious economic downturn in the United States and the entire world economy cannot but affect the cost of oil. Experts' forecasts for fuel demand are increasingly declining. Thus, both major grades of the strategic energy carrier fell today by more than 3% after falling on Wednesday. Over the past week, the benchmark Brent and the American WTI have sank by about 15%, and this is even taking into account sanctions on Russian oil exports and the gradual lifting of quarantine restrictions in China.

It is noteworthy that there is no consensus among analysts regarding the prospects for oil demand today. For example, experts from the financial conglomerate Goldman Sachs report that demand still exceeds supply. And experts of the largest international bank Citi, in turn, expect a drop in demand both by the end of this year and next year.

Cecilia Rose, a representative of the US administration's economic council, shared her opinion with Bloomberg about what factors, in addition to the obvious expectation of a decline in the global economy, could affect the decline in oil prices. In her opinion, one of the reasons for the fall in prices is the obvious instability of the oil market, which is formed, among other things, by the fact that China and India actually buy more Russian oil than officially announced by these countries. Such a situation could greatly weaken the supply gap in world markets and potentially lead to a marked reduction in prices.

Data from the American Petroleum Institute (API), which was published on Wednesday, showed an increase in US oil inventories over the past week, namely by 5.607 million barrels.

The US Department of Energy will publish official data on reserves on Thursday. According to S&P Global Insights surveys, experts expect a decrease in oil inventories by an average of 3.7 million barrels last week, while gasoline inventories will increase by 500,000 barrels, and distillates - by 600,000 barrels.