Oil Tumbles Nearly $12 in Biggest Drop Since March

•Citi predicts $65 by the year-end on recession concerns

Emmanuel Addeh in Abuja

Oil plummeted nearly $12 a barrel yesterday in the biggest daily drop since March this year, amid worries of a global recession even as CitiBank predicted a decline to $65 by the end of the year.

Benchmark Brent crude was down $11.88, or 10.4 per cent, at $101.83 a barrel while US West Texas Intermediate (WTI) crude settled at $99.50 a barrel, falling 8.2 per cent, or $8.93 a barrel.

Reuters reported that both benchmarks logged their biggest daily percentage decline since March 9 and hit share prices of major oil and gas companies. Prices hit the lowest since late-April.

In addition, oil futures sank along with natural gas, gasoline and equities, which often serve as demand indicator for crude.

In China, Shanghai said it would begin new rounds of mass COVID-19 testing of its 25 million residents, reigniting worries about potential lockdowns.

The Dow Jones Industrial Average also slipped about 1.4 per cent while the S&P 500 Index fell less than 1 per cent.

Oil prices have soared by more than 50 per cent this year, although Nigeria has been unable to benefit from it due to lack of drilling capacity, massive theft and deteriorating infrastructure.

With the latest quota hitting 1.826 million bpd, Nigeria’s last known production figure, quoting primary communication was 1.024 million bpd. That means that Nigeria is unable to produce as much as 800,000 bpd.

If a recession does hit, and takes a significant bite out of energy demand, more wild swings to the downside could be in store, said Andy Lipow, president of consultancy Lipow Oil Associates.

“The commodity market can be quite unforgiving when you go into a recession and supplies outstrip demand,” Lipow added.

Supply concerns still linger, initially lifting WTI and Brent earlier in the session, due to expected output disruption in Norway, where offshore workers began a strike.

Saudi Arabia, the world’s top oil exporter, raised August crude oil prices for Asian buyers to near record levels amid tight supply and robust demand. read more

Meanwhile, Citigroup has warned that if a demand-crushing recession occurs, crude oil prices might plummet to $65 per barrel by the end of this year and to $45 by the end of 2023.

The outlook is based on an absence of any intervention by the Organisation of Petroleum Exporting Countries (OPOPE producers and a decline in oil investments, analysts including Francesco Martoccia and Ed Morse said in a report.

Oil has soared this year following the invasion of Ukraine, and banks are now trying to chart its course into 2023 as central banks raise interest rates and recessionary risks mount.

Citi’s outlook compared the current energy market with crises of the 1970s. At present, the bank’s economists do not expect the US to dip into recession.

“For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions,” the Citi analysts said in a note note.

“But oil prices fall in all recessions to roughly the marginal cost,” Bloomberg quoted the group as saying.