Americans have been desperate for gas price relief, but after a precipitous drop in crude oil prices this week, analysts saw it as a sign of trouble ahead.

Simone Del Rosario Business Correspondent

Oil price slump is good for gas prices but driven by recession fears

Jul 06, 2022

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Emma Stoltzfus (Editor)

Americans have been desperate for relief in gas prices but after a precipitous drop in crude oil prices Tuesday, analysts didn’t cheer. That’s because oil’s worst trading day in months was driven by fears of an impending recession and demand destruction.

On Tuesday, West Texas Intermediate crude traded under $100 per barrel for the first time in about two months. On Wednesday, Brent crude prices also took a swim below $100 per barrel for the first time in nearly three months.

Prices have been painfully high since Russia invaded Ukraine and Western sanctions deterred use of Russia’s oil supply. The global supply shocks sent the price of crude above $120 per barrel in June and the U.S. national gas price average soared above $5 per gallon for the first time in history.

But now, traders are becoming less concerned with supply constraints and more concerned with how a recession could decimate demand. Citigroup is among those indicating the headwinds are already here.

“There’s no evidence we’re going to see the summer surge in driving and summer surge in demand, the price is too high,” Citigroup global head of commodities research Ed Morse told Bloomberg.

Citi said its base case for the year is $85 per barrel, but if the country enters a recession, that could slump to $65 per barrel by the end of the year and $45 in 2023.

Oil prices commonly tank during a recession as people and business — with less money to spend — restrict travel and shipping.

On the bright side, the average national price at the pump dropped below $4.80 Wednesday, according to American Automobile Association, after slipping for three straight weeks.

SIMONE DEL ROSARIO: WE’VE BEEN DESPERATE FOR RELIEF IN GAS PRICES.

BUT AFTER A PRECIPITOUS DROP IN CRUDE PRICES TUESDAY – YOU DIDN’T HEAR CHEERS.

NEWS CLIP: recession fears are hammering energy markets at this hour.

NEWS CLIP: we will be clearly watching for signs of demand destruction.

SIMONE DEL ROSARIO: THAT’S RIGHT – IF IT’S NOT ONE CRISIS – IT’S ANOTHER.

WTI CRUDE TRADED UNDER $100 FOR THE FIRST TIME IN ABOUT TWO MONTHS. TRADERS, DRIPPING WITH CONCERNS A RECESSION COULD DECIMATE DEMAND.

CITIGROUP SAYS THE HEADWINDS ARE ALREADY HERE.

ED MORSE, CITIGROUP: there’s no evidence we’re going to see the summer surge in driving and summer surge in demand, the price is too high.

SIMONE DEL ROSARIO: CITI SAYS ITS BASE CASE IS $85 BUCKS A BARREL THIS YEAR. BUT IF WE ENTER A RECESSION – THEY SAY THAT COULD SLUMP TO $65 BY END OF YEAR, AND $45 IN 2023.

IT’S SIMPLE MATH – WHY OIL TANKS DURING A RECESSION. WITH LESS MONEY TO SPEND, PEOPLE AND BUSINESS TRAVEL AND SHIP LESS.

AND FOR THE FIRST TIME IN MONTHS – CONCERNS ABOUT DEMAND DESTRUCTION ARE OUTWEIGHING CONCERNS OF TIGHT SUPPLY.

AND YOUR PRICE AT THE PUMP? THE NATIONAL AVERAGE IS NOW BELOW $4.80, AFTER SLIPPING FOR THREE STRAIGHT WEEKS.

IN NEW YORK FOR JUST BUSINESS I’M SIMONE DEL ROSARIO.