Oil prices have recently fallen due to growing concerns about a U.S. recession, sparking a broader market selloff. The price of West Texas Intermediate (WTI) crude, a U.S. oil benchmark, dropped to around $89 per barrel, while Brent crude, the worldwide standard, traded at around $95 per barrel as of mid-August.
A number of reasons contribute to this decrease. Economic concerns, such as a possible downturn in major economies and decreasing demand for oil, have played an important role. The U.S. GDP has decreased for two straight quarters, raising recession concerns. Furthermore, rising oil output from OPEC+ and other non-OPEC countries has contributed to the reduced prices.
Lower oil prices have caused a chain reaction in gasoline prices, lowering the cost at the pump. This is partially due to a combination of increasing supply and decreasing demand, as customers modify their driving patterns in response to previously high pricing. As of mid-August 2024, West Texas Intermediate (WTI) crude is selling about $89 per barrel, while Brent crude is around $95 per barrel. These prices are a significant reduction from the highs recorded earlier this year. The fundamental cause of this reduction is increased fear about a future economic slump in the United States, which could result in lower demand for oil.
The US economy has showed symptoms of weakness, with GDP falling for two straight quarters. This has fueled fears of a recession, leading oil dealers to predict weaker fuel consumption. Furthermore, the Federal Reserve’s commitment to maintaining higher interest rates to battle inflation raises concerns about economic growth. Higher borrowing costs can limit economic activity, lowering the demand for oil.
On the supply side, the physical crude market has shown symptoms of cooling. The premium of Brent’s first-month contract over the second, known as a downward trend, is approaching its lowest point since January, signaling that supply fears are easing. Increased output from OPEC+ and other non-OPEC countries has also contributed to reduced prices. In July, OPEC+ production surged by 530,000 barrels per day, while non-OPEC production increased by 870,000 barrels per day.
