The recent fall in oil prices amid fears of a global recession raises the question: to what extent could crude oil fall if the world’s major economies contract? Predictions vary.
“Global oil demand is highly correlated with GDP, and so if GDP suffers, global oil demand will suffer as well,” said Stewart Glickman, CFRA’s deputy director of research and energy capital analyst at Yahoo Finance.
On Wednesday, Brent crude futures (BZ = F) fell below $ 100 a barrel for the first time since April. On Tuesday, U.S. crude futures (CL = F) fell below $ 100, a level not seen since May.
“I think OPEC + is trying to thread a pretty narrow needle. They would like to see high prices, of course, but not so high that they would induce a recession. I’m worried that’s exactly what we’re going to get and therefore not I would be surprised if oil prices dropped temporarily to the low $ 90, ”Glickman said.
Citi analysts recently predicted that oil could drop to $ 65 a barrel by the end of the year in the event of a recession and $ 45 by the end of 2023.
Bernstein analysts noted: “If we see a recession and OPEC cuts production by 2 million bpd, then the implicit range [for oil] is $ 70- $ 80 “.
History shows that prices can go down quickly when the economy shrinks.
“In July 2008, crude oil prices reached $ 145 a barrel. By December, the price had dropped to $ 35 a barrel. A recession with a 10% drop in demand could lead to a drop in oil prices of between $ 35 and $ 50 a barrel, ”Andy Lipow of Lipow Oil Associates told Yahoo Finance earlier this year.
Oil analyst Glickman highlights what could differentiate this moment from previous recessions.
“Supply is tense on many fronts,” he said. “It’s not like we’re swimming in crude oil right now.”
He added: “The industry has invested little in new supply for most of the seven years, which is a different dynamic from the last time we had a demand-induced fall in oil prices (2008-09).”
The recent fall in oil comes after a rise in the US dollar against other currencies. A stronger greenback pressures the price of crude, which is traded in dollars.
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Ines is a stock market journalist. Follow her on Twitter at @ines_ferre
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