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Oil weakens on inflation and fears of recession in the United States

Oil prices slid on Monday, weighed down by fears of economic recession and galloping inflation in major crude-consuming countries like the United States, when in China, the possibility of new confinements in the largest cities worries. Around 9:20 a.m., a barrel of Brent from the North Sea for delivery in August lost 1.11% to 120.66 dollars. A barrel of US West Texas Intermediate (WTI) for delivery in July fell 1.17% to 119.26 dollars.

The Chinese capital, Beijing, launched yet another general screening in the most populous district of the city center on Monday, after an epidemic resurgence which led to the return of anti-Covid-19 restrictions. “The hope of a rapid and complete return to normal in oil demand after the lifting of containment measures in China, the world’s second largest oil consumer, has therefore proved premature.commented Carsten Fritsch of Commerzbank. The analyst also points to another factor weighing on prices: new fears of recession “after the inflation rate in the United States turned out to be significantly higher than expected“.

The US central bank is preparing to raise its key rates

Consumer prices resumed their escalation in May in the United States, breaking a new high in 40 years. Over twelve months, inflation is galloping to 8.6%, against 8.3% the previous month. Faced with inflation which continues to climb, even becoming Joe Biden’s economic priority, the American central bank is preparing to raise its key rates for the third time on Wednesday, and could accelerate the movement.

A much larger increase in interest rates combined with a recession “would also affect oil demand in the world’s largest consuming country“, continues Mr. Fritsch. “Controlling inflation by almost any means necessary is now the most important task for fiscal and monetary policy makerssays Tamas Varga, analyst at PVM Energy. “It will be at the expense of economic growth, which will inevitably destroy the demand for oil“, he also believes. At the same time, the marked appreciation of the dollar is also pulling crude prices down, since it weakens the purchasing power of investors using other currencies.




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