Oil tumbles more than 8%, breaks below $100 as recession fears mount

Oil well pump jacks operated by Chevron Corp. in San Ardo, California, U.S., on Tuesday, April 27, 2021.

The U.S. benchmark fell below $100 a barrel on Tuesday, sparking fears that an economic downturn will hurt demand for oil.

The US oil benchmark, West Texas Intermediate crude, fell 8.4% to trade at $99.29 per barrel. On May 11th, the contract traded under $100.

The price of international benchmark crude fell by 9% to trade at $103.16 per barrel.

The move was attributed totightness in global oil balances being countered by a strong likelihood of a recession.

The firm wrote in a note to clients that the oil market seems to be homing in on some recent weakness in demand for gasoline and diesel.

Six months of gains were snapped in June as recession fears caused Wall Street to rethink the demand outlook.

If the economy goes into a recession, the price of oil could fall to $65 by the end of the year, according to a report by Citigroup.

The firm wrote that in a recession, commodities would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments.

At a time when other firms are calling for oil to hit $140 or more, Citigroup is one of the few oil bears.

Concerns about global shortages have been raised by higher prices since Russia invaded Ukraine.

In March, the price of oil went up to a high of $130.50 per barrel, while the price of oil went down to a low of $129 per barrel. Each contract had its highest level in a long time.

Thanks to tight supply and a rebound in demand, oil was moving even before Russia invaded.

The surge in inflation is due to high commodity prices.

The national average price of a gallon of gas hit a high of $5.016 on June 14th. The national average was at $4.70 on Tuesday.

Oil prices are likely to stay elevated despite the recent decline.

The recession has a poor record of killing demand. Bart Melek, head of commodity strategy at Toronto-Dominion Bank, said in a note Tuesday that product inventories are at critically low levels.

Even if demand growth slows, prices will remain supported because little progress has been made on fixing structural supply issues in the oil market.