Oil prices yesterday plunged more than 5 percent as traders grow increasingly worried that demand for the commodity will take a hit from a possible recession caused by a sharp hike in interest rates aimed at reining in inflation.
West Texas Intermediate lost 5.6 percent to US$103.31 a barrel, while Brent was off 5.2 percent at US$108.62.
Crude has soared in recent months to multiyear highs on concerns that tight supplies caused by the Ukraine war will not be enough to meet demand from reopening world economies, particularly China as it emerges from months-long COVID-19 lockdowns.
However, central banks have been forced to ramp up borrowing costs as the rise in energy costs has helped send inflation soaring to levels not seen since the 1980s. That has fanned concerns that economies around the world are heading for a recession, sending chills through crude markets.
Eyes are on a two-day congressional testimony by US Federal Reserve Chair Jerome Powell this week, which would be looked over for an idea about officials’ plans for fighting runaway prices.
However, Goldman Sachs Group Inc said it still sees prices for the black gold to resume their upward march.
“With commodity demand above supply, markets remain tight even as growth rates slow,” it said in a note. “Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom, inflation, and not a cure for the problem, underinvestment.”
Separately, US President Joe Biden was yesterday expected to call for temporarily suspending the US$0.184 a gallon federal tax on gasoline, as the US struggles to tackle soaring gasoline prices and inflation, a source briefed on the plan said on Tuesday.
A gas tax holiday faces significant opposition in the US Congress, including among many Democrats.
However, high gasoline prices pose a significant political problem for Biden and congressional Democrats as they struggle to maintain their slim control of Congress in November’s midterm elections.
Additional reporting by Reuters
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