Talk of an Oil Market Recession Is Overblown
The global economy isn’t slowing enough to spark a collapse in crude prices.
The stormy forecasts for oil are overblown.
Photographer: George Rose/Getty Images
The oil market suffered a brutal selloff this week, prompting concern about a repetition of the 2008 boom-and-bust cycle. Back then, Brent jumped to a record high of almost $150 a barrel in July but ended the year below $40 as the global financial crisis deepened. This time, though, weakness in the financial oil market is at odds with the strong physical crude market.
In absolute terms, Tuesday’s $10.73-a-barrel one-day plunge was the third largest since the launch of the Brent oil futures market in 1988. Even if in percentage terms the 9.45% fall only ranked as the 20th-biggest decline in a single trading session, it was still nerve wracking for oil bulls. The losses extended Wednesday with Brent falling below $100 a barrel, down 17% from the peak a month ago of almost $122.
Undoubtedly, the oil outlook for the coming months and into 2023 has deteriorated over the last month or so. Europe is probably in recession, and the health of its German economic locomotive is imperiled by surging natural gas and electricity prices. The prospect of energy rationing this winter on the continent is very real. At the same time, high retail fuel prices are starting to dent oil demand growth as preliminary gasoline sales in the US over the recent Independence Day holiday weekend suggest. The supply picture has brightened a tiny bit; Russian oil production is falling less than expected, and Washington has signaled it’s not interested in pushing it lower.