(Bloomberg) — Oil sank as investors weighed in on rising concerns that the US could be headed for a recession, while the Biden administration prepared to intensify its fight against high pump prices by calling for a tax holiday on gasoline.
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West Texas Intermediate fell below $106 a barrel, an echo of last week’s return. With investors worried about the impact of higher US interest rates, Federal Reserve Chairman Jerome Powell is due to testify before Congress on Wednesday on his bid to halt inflation rising at the fastest pace in decades.
President Joe Biden will call for a gasoline tax holiday, a person familiar with the plan said, as the average US retail price rose above $5 a gallon this month after a more than 50% increase in 2022. The initiative comes ahead of a meeting on Thursday. Between refiner and Energy Secretary Jennifer Granholm.
Oil is headed for a monthly loss as concerns about a broader economic slowdown offset signs of still-tight conditions and fallout from the war in Ukraine. Supermajor Exxon Mobil Corp warned this week that crude markets could remain tight for years, while the world’s largest independent oil trader Vitol Group flagged rising fuel demand in China. At the same time, rising margins are offering refineries an incentive to buy every barrel of crude they can get.
“The recent broader macro impacts are deciding price direction for oil,” said Warren Patterson, Head of Commodity Strategy at ING Grop NV in Singapore. “However, fundamentally the market still remains constructive. Oil balances are set to tighten for the rest of the year, while strong refinery margins in the short term should be supportive of crude demand.
Concerns about a possible US recession, which could dampen energy demand, have risen in recent days after the Fed hiked rates. Everyone from Tesla Inc Chief Executive Officer Elon Musk to economist Nouriel Roubini has cautioned against the growing potential for the world’s largest economy to slip into recession.
Nevertheless, the oil market remains in a laggard, a bullish pattern marked by trading of near-term prices above a longer period. Brent’s early spread – the difference between its two nearest contracts – was at $2.89 a barrel in the backcountry compared to $2.73 a barrel earlier this month.
“With demand for the commodity above supply, markets remain tight despite slowing growth, as evidenced by high levels of sharply backwardness in major markets such as oil,” Goldman Sachs Group Inc. said in a note. “Investors should remember that a Fed-induced recession is only the symptom, a short-term reduction of inflation, and is not the cure for the problem, underinvestment.”
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