Oil Prices fell nearly 2% on Fears of a Global Economic Slowdown and even Recession

Energy | July 12, 2022, Tuesday // 10:35|  views


Oil fell in early European trading by nearly 2% amid fears of a global economic slowdown and even the risk of an impending recession, which would worsen the outlook for demand for the important energy raw material.

These economic concerns are fueled by reports of renewed anti-epidemic restrictions in various parts of China, as well as growing cases of Covid-19 in South Korea. About 30 million people in China are under some form of travel restrictions as the country battles resurgent virus outbreaks, with Omicron's highly contagious BA.5.2.1 subvariant detected in Shanghai.

In view of China's "zero Covid" policy, there are fears that new restrictive anti-epidemic measures are about to be introduced just weeks after the lockdowns introduced in early spring were lifted in a number of major cities, industrial and commercial centers.

It should be borne in mind that China is a major importer of oil and new anti-Covid measures may again limit economic activity in the country and reduce demand/consumption of important energy raw materials, including oil.

At the same time, record inflation and the energy crisis in Europe are prerequisites for increasingly weak economic growth against the backdrop of the ECB's first interest rate hike in 11 years expected later this month.

Yesterday, EC Vice-President Valdis Dombrovskis signaled that on Thursday the Commission will again revise down its forecast for economic growth in the Eurozone, while at the same time raising its estimate for inflation.

Around 10:00 a.m. Bulgarian time, Brent oil futures fell by 1.80% to 5.20 per barrel, and American light crude WTI futures fell by 2% to 2 per barrel.

Brent oil chart (in dollars per barrel)


Support for lower oil prices was yesterday's news that a Russian court overturned a previous decision to suspend for 30 days the operations of the Caspian Pipeline Consortium (CPC), ensuring the export of Kazakh oil through the Black Sea, equal to 1% of global supplies and instead fined it 200,000 rubles (,300).

In addition, President Joe Biden will visit Saudi Arabia this week amid efforts to lower energy prices.

However, the decline in oil futures was limited by persistent global supply concerns as major producers have limited additional production capacity, while Russian supplies remain subject to Western sanctions imposed over Moscow's incursion into Ukraine.

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Tags: oil, price, fell, China


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