Oil plunges $6 as recession fears heighten demand concerns

Oil prices dropped $6 on Tuesday as concerns about a possible global recession curtailing demand outweighed supply disruption fears, highlighted by an expected production cut in Norway.

Brent crude was down $6.65, or 5.9%, at $106.85 a barrel by 1344 GMT, and U.S. West Texas Intermediate (WTI) crude fell $5.65, or 5.2%, to $102.78 a barrel from Friday’s close. There was no WTI settlement on Monday because of a U.S. holiday.

Investors are becoming more concerned as the latest surge in gas and fuel prices adds to worries about the recession.

“Oil is still struggling to break out from its current recessionary malaise as the market pivots away from inflation to economic despair,” Stephen Innes of SPI Asset Management wrote.

In the eurozone, data showed business growth across the bloc slowed further last month, with forward-looking indicators suggesting the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.

In South Korea, inflation hit a near 24-year high in June, adding to concerns about slowing economic growth and oil demand.

Supply concerns still linger, initially lifting WTI and Brent earlier in the session, amid worries about potential output disruption in Norway, where offshore workers began a strike.

The strike is expected to reduce oil and gas output by 89,000 barrels of oil equivalent per day (boepd), of which gas output makes up 27,500 boepd, Norwegian producer Equinor has said.

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.

Meanwhile, Russia’s former president Dmitry Medvedev said on Tuesday a reported proposal from Japan to cap the price of Russian oil at about half its current level would mean less oil on the market and could push prices above $300-$400 a barrel.

G7 leaders agreed last week to explore the feasibility of introducing temporary import price caps on Russian fossil fuels, including oil, in an attempt to limit resources to finance Moscow’s “special military operation” in Ukraine.