Oil prices dipped by 6 percent early on Wednesday, with Brent slumping below $110 a barrel, as the market fears a looming recession would drive down global oil demand.
As of 9:10 a.m. EST on Wednesday, WTI Crude was down below the $105 a barrel mark and traded at $102.77, down by 6.24 percent on the day. The international benchmark, Brent Crude, had plunged below the $110 threshold and was at $108.18, down by 5.70 percent.
A growing number of analysts and economists now say that the Fed's attempts to rein in inflation with aggressive interest rate hikes may not produce the policy makers' goal of a "soft landing" of the U.S. economy and will actually lead to a recession within a year or a year and a half.
Moreover, the strong U.S. dollar is also weighing on oil prices, as a strong greenback makes oil purchases more expensive for holders of other currencies. A rising U.S. dollar could impact the level of imports at oil-importing countries.
The Biden Administration - locked in a dispute with the U.S. oil industry over whose fault $5 a gallon gasoline price in America is - is pushing for a temporary federal gas tax holiday, also likely weighing on oil prices.
"In addition to a recovery in Libya's production, broader macroeconomic developments, namely the rising risk of a recession hurting demand has in recent sessions managed to more than offset a continued tight supply outlook driven by sanctions, peak summer demand, and several OPEC+ producers struggling to raise output to agreed levels," Saxo Bank said in a daily commentary on Wednesday.
"President Biden's fight against high gasoline prices ahead of the midterm election has also received some attention, although a potential gasoline tax holiday, while supporting consumers, would support demand, thereby prolong the period of tightness," the bank's strategists said.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Gas Production From Giant Groningen Field To Halt Completely On October 1
Oil Prices Fall Back As Traders Take Profits
Game-Changing Titanium Dioxide Electrode Transforms CO2 To Clean Fuel
Longevity Of $100 Oil Comes Down To Who’s Right About The Saudis
A Potentially Bearish Signal For Oil Markets