Prices were weighed down more by fears of recession than by US President Joe Biden’s plan to temporarily suspend federal fuel taxes to reduce inflationary pressures.
(Boursier.com) — Oil prices lost ground on Wednesday, mainly weighed down by fears of a recession, which Federal Reserve Chairman Jerome Powell admitted was “possible” in the United States, due to the tightening. monetary policy underway to curb inflation.
Wednesday evening, the barrel of American light crude WTI fell 3% to $106.19 on the Nymex (August futures contract), while the Brent of the North Sea August expiry fell 2.5% to $111.74 on the ICE.
Prices were weighed down more by fears of recession than by the US President Joe Biden’s plan to temporarily suspend federal fuel taxes in order to reduce the inflationary pressures from which American consumers are suffering.
The price of a gallon of gasoline has reached record highs in the United States
The White House asks Congress to pass the elimination for three months, until the end of September, of a federal tax of 18 cents per gallon (3.78 liters) and calls on states, which also tax gasoline at the pump, to do the same, in order “to directly relieve American consumers who are suffering from Putin’s price hike”, senior officials said of the Biden administration.
Inflated by the post-health crisis recovery, then by the war in Ukraine, the average price per gallon of gasoline recently reached a record high of more than $5 in the United States, compared to around $3 a year ago, and this outbreak has repercussions in the national economy, leading to a decline in the popularity rating of the American president. This has less than 40% of favorable opinions, a few months before the mid-term legislative elections next November.
An ineffective measure to balance the oil market
US Secretary of the Treasury Janet Yellen pointed out on Wednesday that the impacts of energy prices “actually amount to half of inflation” and expressed support for the proposed Gasoline Tax Holiday.
Such a measure, on the other hand, would not have a negative impact on demand, point out analysts, for whom only a reduction in demand could permanently lower oil pricesin view of a supply that is still constrained at the global level.
Some believe that a suspension of taxes could even be counterproductive, by stimulating demand for fuels (and therefore oil) during the summer holiday season, and thus contributing to the continued rise in prices…
A recession is “possible”, admits Jerome Powell
More than Joe Biden’s project on taxes, investors followed closely the hearing this Wednesday of Jerome Powell, the chairman of the Federal Reserve, before the United States Senate. He confirmed the priority given by the Fed to the fight against inflation, despite the risk, assumed, to cause a recession in the United States, a scenario which would certainly lead to a fall in oil prices.
The Fed thus remains “strongly committed” to bringing inflation down, Powell said, adding that the pace of further rate hikes will depend on indicators and how the economic outlook evolves. “We will make our decisions meeting after meeting,” he explained.
Pressed by questions from senators, the Fed boss admitted that it is “possible” that the rate hike could lead to a recession “It’s not the desired effect at all, but it’s definitely a possibility,” he added, admitting that a soft landing was going to be “very difficult”.
On June 15, the Fed carried out a rate hike of 75 basis points, the largest hike since 1994, which took its federal funds rate between 1.5 and 1.75%, in order to counter inflation, which reached 8.6% over one year in May in the United States, the highest for 41 years. Fed Chairman Jerome Powell has indicated that the institution will proceed with a further hike, of 50 or 75 bps, at the next meeting in July. The new economic projections for the Fed forecasts a rate of “fed funds” at 3.4% at the end of 2022, which would be its highest level since 2008, then at 3.8% at the end of 2023.