On July 5, the price of international crude oil futures plummeted. The settlement price of the main contract of WTI crude oil futures in the United States was $99.50 / barrel, down $8.93 or 8.2%;, The settlement price of the main contract of Brent crude oil futures was $102.77 / barrel, down $10.73 or 9.5%. Oil prices recorded the largest one-day decline since March, with Brent down nearly 10%, mainly due to rising market concerns about the global economic recession, pressure on the commodity sector, and bearish energy commodities such as crude oil.

Why did the oil price suddenly plummet when it seemed that there was no major bad news in the market?

Whether from a macroeconomic perspective or from the perspective of future demand expectations, crude oil has continued to accumulate negative recently.

Judging from the inflation level in the United States, it has reached a 40 year high, so the expectation of the Federal Reserve raising interest rates is predictable for the future recession. We have observed that the US dollar index has also continued to rise. At present, it has reached a new high of nearly 20 years and has risen to 106.78 points. The appreciation of the US dollar first suppressed the valuation of US dollar denominated commodities. More importantly, the venture capital market is also performing badly, which will bring resonance effect to crude oil. On July 5, European and American stock markets fell sharply. The three major indexes of European stocks fell by more than 2%, and the three major indexes of American stocks fell by more than 1% during the session. Crude oil, gold, silver and other commodities fell indiscriminately.

According to the current market news, there were rumors of oil and gas workers’ strike in Norway before, because it was expected that Norwegian output would be interrupted, causing oil prices to rise. News on the 5th showed that the Norwegian government intervened and ended the strike. In addition, it is reported that US President Biden will go to Saudi Arabia to attend the summit with Gulf leaders in mid July. The purpose is still to urge oil producing countries to increase production. The market expects that Saudi Arabia and the United Arab Emirates still have a certain capacity to increase production, and some other countries may have difficulties in increasing production. On the whole, the recent oil price has been negative from the news side.

Will the oil price never recover? Where will the oil price go in the future?

From the perspective of supply and demand, in the context of the conflict between Russia and Ukraine, the geopolitical situation continued to deteriorate, and the expected background of tightening crude oil supply remained unchanged. From the perspective of the International Energy Agency (IEA) and the organization of Petroleum Exporting Countries (OPEC) on the oil market, the crude oil market is still in a tight balance in the later stage. In the second half of the year, with the expectation of fuel shortages in the driving season and winter in Europe and the United States, as well as the stable increase of Chinese demand in the post epidemic era, oil demand may still grow moderately, while the gap in Russia cannot be filled by oil producing countries in the short term.

However, in the long run, due to high inflation and interest rate hikes, the risk of economic recession will put pressure on oil prices. The game point of the future market is the supply shortage caused by geography and the economic recession risk that may be derived from the Fed’s interest rate hike. Taking into consideration, under the premise of tight supply and demand, the driving force of sharp decline is not very strong, but the oil market may intensify the shock in the future, the amplitude will increase, and the market risk will also increase.