Oil Breaks Above $120 Per Barrel Before Dipping On Worries Of Likely US Recession

Oil Breaks Above $120 Per Barrel Before Dipping on Worries of Likely US Recession

NEW YORK (UrduPoint News / Sputnik - 07th June, 2022) Oil hit three-month highs above $120 per barrel on Monday before settling lower as market participants took profit at the session peak on worries about a potential US recession from record fuel prices and runaway inflation.

The London-traded Brent, the global benchmark for crude oil, settled down 21 cents, or 0.2%, at $119.51 a barrel. Earlier, Brent reached $121.85, a peak since the first week of March when it surged to almost $140 after the first Western sanctions imposed on Russia over its special operation in Ukraine. Year-to-date, Brent is up 53%.

The New York-traded West Texas Intermediate, the benchmark for US crude, settled down 37 cents, or 0.3%, at $118.50 per barrel. WTI is up 57% on the year.

The average price of gasoline at the pump in the United States hit all-time highs near $4.87 a gallon on Monday, up from $3.05 a year ago. Diesel averaged $5.65 a gallon, up from $3.20 a year ago.

Some analysts say demand destruction in fuel is already happening from such record high prices, with four-week consumption in gasoline down 2.6% in the third week of May from a year ago. Other analysts say gasoline and diesel were "inelastic" commodities that people need for travel and their demand will not be hurt as much as the broader economy.

"I think people will economize on their driving only so much," Mark Zandi, chief economist at Moody's Analytics, told CNN.

"The hit will be to other forms of discretionary spending."

Economists said they worry that in its bid to fight inflation, the Federal Reserve will tip the United States into a recession. The economy has been on a weaker trajectory since the start of this year, experiencing a negative growth of 1.4% in the first quarter. If it does not return to positive territory by the second quarter, it will technically be in recession given that recession is defined as two negative quarters in a row.

"The rule of thumb is for every $10 increase in price of a barrel of oil, it shaves one-tenth of a point off GDP," Zandi said, referring to gross domestic product.

Oil hit three-month highs after reacting to European Union's ban since last week on most Russian oil products. China's lifting of COVID-19 restrictions, strong US jobs growth and Saudi Arabia's hike in the selling price of its crude also contributed to the rally.

The run-up also came ahead of the May reading for the Consumer Price Index, due on Friday, which is being watched for further signs of consolidation after its 8.3% growth for the year to April. That was the first time since the CPI reading softened since August, when it showed an annual growth of 5.3%.

Some economists expect the May reading to be a touch softer than the one for April with an annual growth of 8.2%.