Oil Decline and Recession Fears

July 12, 2022 at 12:39 PM

Only during the last few days, WTI oil plummeted below the critical 100 USD threshold, which can be described as a serious global economic depression. As Oil is considered one of the most sensitive assets investors chose to stay on the safe side and sell the cyclical commodity.

Russia Predicts an Inevitable Collapse

As oilprice.com mentions, Russian president Vladimir Putin states, that Europe will not be able to avoid catastrophic energy consequences, as long as the sanctions are in place.
“We know that the Europeans are trying to replace Russian energy resources. However, we expect the result of such actions to be an increase in gas prices on the spot market and an increase in the cost of energy resources for end consumers,” these are Putin’s words from the meeting with senior officials.
Putin is sure, in time Europe will be the one to experience the impacts of the sanctions, even more than Russia itself (this is already partly true). Putin urges that the effects of the further use of sanctions will be catastrophic, and this is put mildly.

Recession Is Unavoidable

Based on numerous indicators, the US is already experiencing a recession. Moreover, energy and food prices show that many European countries will soon face the same fate. A recession usually results in a sharp decline in oil demand, which usually leads to lower prices.
“There’s the technical part of the recession, but then there’s the meaningful deterioration in consumption and employment,” Sameer Samana, the Wells Fargo Investment Institute’s senior global market strategist, expressed his concerns to Bloomberg. “The technical part is the first-half story, and the brunt of the unemployment and consumption is the second half,” Samana explained.
Yet, in contrast to earlier anticipations, demand might not increase. Just like that, supply is not flourishing either. For instance, Saudi Arabia had to raise its prices for Asian consumers to record levels. When a fall in demand is anticipated for the products, sellers generally do not raise their prices.
Thus, Goldman Sachs’s assumption that oil might still reach 140 USD per barrel makes sense. Another anticipation from Damien Courvalin of Goldman is as follows, “140 USD is still the basic scenario because, unlike stocks, which are anticipatory assets, commodities need to answer for today’s misaligned supply and demand.”

Bearish Reversal?

For now, the price is below the uptrend line, which might be bearish. It is possible that oil will undergo a decline in the coming 200-day, at 94 USD.
However, if oil moves back above the uptrend line the price will possibly return to 120 USD.

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