While oil prices have declined from their highs of the year, investors in that energy market have yet to price in the potential of an economic recession around the world.
The price of crude oil traded around $104 a barrel on Friday, gaining for the day but still set to lose 5% in July. The US benchmark, West Texas Intermediate crude, moved toward a July loss of nearly 10% on Friday.
The price of oil has fallen from a peak of $128 a barrel in March, but it is still higher than a year ago.
According to a research note published Wednesday, prices for other commodities have been slashed. "One explanation for tanking commodity prices is that worries about a recession are taking hold, which, in theory, would cut demand."
Since the peak in March, copper prices have fallen 30% and lumber inventories have beenpiling up at both saw mills and home improvement stores.
The direction of crude oil prices is in line with the base case forecast from JP Morgan. Kaneva said that neither the oil demand estimates nor the price forecasts anticipated a recession.
The risk of a recession is growing despite the fact that the oil price is still low.
This week's recession signals were very strong. The Commerce Department said that the US economy shrank in the second quarter. The world's largest economy fell 1.6% in the first quarter, putting it on track for a technical recession.
The International Monetary Fund cut its global GDP growth projection to 3.2% from 3.6% due to "increasingly gloomy developments."
Oil price tends to fall in all recessions if global growth remains positive.
If the price of the commodity drops 40% from Friday's level, it will trade at more than $65 a barrel.
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