Why did oil crash sharply below $100/bbl on Wednesday?

West Texas Intermediate (WTI) crude dipped below the $100 mark and very soon even the Brent also followed suit. While they did recover, oil does look quite fragile. After peaking at around $139/bbl about two months back, the price of Brent Crude has almost cracked 40% from peak levels. Apart from crude oil, most of the industrial commodities like copper, aluminium and zinc also took a hit on concerns of a recessionary slowdown in demand.

The crack in oil came on the assumption that the economic slowdown would ultimately dent demand for most of the commodities, including oil. Generally, crude oil prices have been prone to violent swings and normally weak demand expectations are the biggest enemy of oil prices. To add fuel to the fire, Citigroup issued a research note to its clients opening up the possibility of $65/bbl for oil, if the recessionary fears continued in the economies.

Like most commodities, oil is also a persistent battle between demand and supply. Crude oil prices slumped sharply amidst weakening demand concerns. The real fear in the market now is that some of the world’s leading economies, including the US and EU, will have to endure negative growth in next few months. Things are only getting worse with China announcing stringent lockdowns with its zero COVID policies. It is hitting supply chains.

However, most don’t buy the highly pessimistic scenario for oil prices. Russian oil is still going to take a long time coming to global markets. Also, disruptions like the recent strike in Norway oil companies and supply disruption in Libya have kept supply under strain. Oil would get bad but not so bad.