Americans have been desperate for relief in gas prices but after a precipitous drop in crude oil prices Tuesday, analysts didn’t cheer. That’s because oil’s worst trading day in months was driven by fears of an impending recession and demand destruction.
On Tuesday, West Texas Intermediate crude traded under $100 per barrel for the first time in about two months. On Wednesday, Brent crude prices also took a swim below $100 per barrel for the first time in nearly three months.
Prices have been painfully high since Russia invaded Ukraine and Western sanctions deterred use of Russia’s oil supply. The global supply shocks sent the price of crude above $120 per barrel in June and the U.S. national gas price average soared above $5 per gallon for the first time in history.
But now, traders are becoming less concerned with supply constraints and more concerned with how a recession could decimate demand. Citigroup is among those indicating the headwinds are already here.
“There’s no evidence we’re going to see the summer surge in driving and summer surge in demand, the price is too high,” Citigroup global head of commodities research Ed Morse told Bloomberg.
Citi said its base case for the year is $85 per barrel, but if the country enters a recession, that could slump to $65 per barrel by the end of the year and $45 in 2023.
Oil prices commonly tank during a recession as people and business — with less money to spend — restrict travel and shipping.