WTI Slides Below $100 on Demand Worry Amid Recession Fears

 

By Liubov Georges, DTN/Progressive Farmer  

5/10/2022

 

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Tuesday's session with sharp losses triggered by growing concerns over derailed demand growth this summer amid signs of a sharp economic slowdown in the United States and elsewhere as central banks around the world move to tighten pandemic-era policies of quantitative easing.

 

Tuesday's move lower in the oil complex comes as investors navigate a cocktail of geopolitical and macroeconomic risks tied to rising inflation in the United States, COVID-19 lockdowns in China, and war in Ukraine with potential spillover into Eastern Europe.

 

Domestically, soaring inflation prompted U.S. Federal Reserve to raise the federal funds rate by a rare 50 basis points last month -- the single largest hike in interest rates by the central bank in 22 years. Speculation is growing the central bank will have to raise interest rates even more aggressively to tackle the inflationary pressure.

 

On Monday, Federal Reserve Bank of Atlanta President Rafael Bostic suggested two or three more 50 basis point rate hikes are needed this year, a view shared by Cleveland Federal Reserve President Loretta Mester who backs even larger rate hikes should inflation not cool off in the second half of the year.

 

"We don't rule out 75 forever. We're going to have to assess whether inflation is actually moving down, and then we'll be able to get more information after we do a couple of those to see," she said, referring to 50 basis point hikes.

 

Investors now await the release of U.S. Consumer Price Index for April scheduled for 8:30 a.m. EDT Wednesday, with consensus calling for consumer prices to have risen a modest 0.2% on the month in April versus March's 1.2% month-on-month increase, which was the largest monthly advance in 42 years. Year-over-year, CPI is expected to have slowed to an increase of 8.1% versus March's 8.5% annual gain, the largest yearly advance in 41 years. Should inflation data miss expectations, it could prompt the Federal Reserve to raise interest rates more aggressively and earlier than previously thought, which would surely trigger another selloff in equities.

 

In China, the economy has taken a hard hit from government-mandated lockdowns slapped on the country's major cities of Beijing and Shanghai. Chinese car sales plummeted 35.7% last month -- the biggest decline in over two years…

 

 

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