Double-whammy drives oil prices below US$90 for first time in almost six months

Down -1.30% for the week, stocks in listed energy sector (which in varying degrees are a proxy for the oil price) are likely to open lower again this morning following a continuation of recent oil declines which saw the ‘black gold’ fall to levels not seen since the start of the Ukraine war.

What happened to prices?

• West Texas Intermediate fell 2.3% to $US88.54 a barrel - to its lowest level in six months

• The Brent crude price fell by US$2.66 or 2.7% to US$94.12 a barrel

• The US Nymex crude price fell by US$2.12 or 2.3% to US$88.54 a barrel

To put recent falls in context, oil peaked at more than US$130 a barrel in March.

Given how tight the market remains and how little scope there is to relieve that right now, Craig Erlam, senior market analyst at Oanda described price falls below $US90 a barrel as "remarkable".

“But recession talk is getting louder and should it become reality, it will likely address some of the imbalance.”

Two different dynamics are fuelling oil’s decline

Firstly, weaker US gasoline demand and the possibility of recession is clearly weighing on American consumers.

According to government data, Americans are spending less time in the car than they did in the summer of 2020 as fears of an economic slowdown escalate.

Then there’s the recent decision by the OPEC+ oil cartel, led by Saudi Arabia and Russia, to undertake a minor increase in production.

However, a Reuters report suggests Saudi Arabia and the UAE are ready to deliver a "significant increase" in oil output should the world face a severe supply crisis this winter.

Interestingly, while OPEC+ agreed to boost supply by only 100,000 barrels a day in September, Saudi Arabia simultaneously hiked its oil prices for buyers in Asia to a record level.

What markets have inferred from this decision is that Saudi Arabia – the world’s largest exporter - expects the region’s market to remain tight.