Oil tumbles as recession fears intensifies

Recession fears seem to dampen the market mood. Oil prices suffered their biggest daily drop since March on growing fears of a global recession and lockdowns in China that could slash demand. Oil drops to 12-week low to below $100 as fears of global recession grows.

The threat of a recession in the euro zone is a clearer risk now relative to before. The euro dropped by almost 1.8% against the dollar to $1.0236, its weakest level since December 2002. It was last down 1.48% against the dollar. Oil futures sank along with natural gas, gasoline and equities, which often serve as a demand indicator for crude.

If people are concerned there's going to be a slowdown and put their money in the safest place and cut back on unnecessary spending, it can become a self-fulfilling prophecy. Experts say, some investors were betting that falling gas prices could give shoppers more money to spend and if a recession does hit, and takes a significant bite out of energy demand, more wild swings to the downside could be in store.

Investment bank Goldman Sachs said the oil sell-off was driven by growing recession fears. The euro tumbled to a two-decade low as data showed business growth across the euro zone slowed further last month, with forward-looking indicators suggesting the region could slip into decline this quarter as the cost-of-living crisis keeps consumers wary. In South Korea, inflation hit a near 24-year high in June, adding to concerns about slowing economic growth and oil demand. A stronger U.S. dollar makes oil more expensive for holders of other currencies, which can curb demand.

In China, the world's biggest oil importer, the market worried that new COVID-19 lockdowns could cut demand. At the same time, China's crude oil imports from Russia, meanwhile, soared 55% from a year earlier to a record level in May. Russia displaced Saudi Arabia as the top supplier as refiners cashed in on discounted supplies amid sanctions on Moscow over its invasion of Ukraine.

At the same time, President Vladimir Putin said that Russia was in the process of rerouting its trade and oil exports towards countries from the BRICS group (countries comprising Brazil, Russia, India, China and South Africa) of emerging economies in the wake of Western sanctions over Ukraine.

Russia is trying to forge closer ties with Asia, seeking to supplant the markets it lost in the row with the European Union and the United States. Going forward, Russia was discussing increasing the presence of Chinese cars on the Russian market as well as the opening of Indian supermarket chains.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA