The price of oil fell below $90 on Wednesday, dropping to $89.93 per barrel for Brent crude as demand fears sparked market volatility, fanning the flames of recession fears.
Prices dropped to levels not seen since before Russia’s invasion of Ukraine, with the swing below $90 marking a far plunge from the commodity’s heights of almost $130 per barrel in March.
Lockdowns in the world’s largest consumer China sent demand fears surging across the market, after the country shut down its 21 million population in Sichuan Province capital Chengdu and introduced a tiered restrictions system in tech hub Shenzhen.
China’s growth and production levels have declined over recent months, and the latest lockdowns sent investment bank Noruma’s expectations of the nation’s GDP to 2.7%, representing a drop from its already bleak estimate of 2.8% from its August estimate.
“Back [on Aug. 17], when we cut our Q3 and Q4 GDP growth forecasts, we did not expect growth to worsen at such a pace,” said Nomura chief China economist Ting Lu.
“What is becoming increasingly concerning is that Covid hotspots are continuing to shift away from several remote regions and cities – with seemingly less economic significance to the country – to provinces that matter much more to China’s national economy,” said Nomura analysts.
Experts are warning of a recession coming down the line in winter, exacerbating fears of lowered demand and sending oil prices down lower.
The closure of the Nord Stream 1 pipeline to Germany also served to add fuel to recession projections, according to credit rating agency Fitch on Tuesday.
Meanwhile, the US Federal Reserve is widely expected to hike interest rates following chair Jerome Powell’s hawkish stance at the Jackson Hole convention last month, and the ECB is anticipated to raise its rates aggressively at its next meeting.