As crude has soared in recent months due to tight supplies of crude caused by Russian invasion of Ukraine will not be enough to meet the demand from reopening of world economies, particularly China as it opens up after a month-long lockdowns.
On Wednesday oil prices plunged more than five percent which has made traders stressed over the fact that the demand for the commodity will take a hit from a possible recession caused by increase in interest rate pointed towards reining at inflation. West Texas Intermediate lost 5.09 percent to $103.92 a barrel, while Brent was off 4.70 percent at $109.26. Central Banks have been forced to ramp up borrowing cost as the increase in energy costs has helped inflation soaring to levels as not seen since the 1980s. That has caused apprehension in the crude market as it is assumed that the economies around the world are heading for a recession.
“With commodity demand above supply, markets remain tight even as growth rates slow,” Goldman Sachs said in a note. He also said, “Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom, inflation, and not a cure for the problem, underinvestment.”
Everyone is waiting for a two-day Congressional testimony by Federal Reserve boss Jerome Powell this week, which will be looked over for an idea about officials’ plans for fighting runaway costs.