Oil Prices are Plunging Again as Traders Size Up Global Recession Risk
Oil prices extended their slide on Thursday, as traders sized up the impact of a U.S.-China tariff war on an already weak global economy.
Crude Prices Fall
U.S. and international crude futures are heading for their second consecutive declines, partially offsetting a five-day oversold rally.
The West Texas Intermediate (WTI) benchmark for U.S. crude reached an intraday low of $53.77 a barrel in New York. It was last down 66 cents, or 1.2%, at $54.59 a barrel.
Brent crude, the international futures benchmark, fell $1.29, or 2.2%, to $58.19 a barrel on London’s ICE futures exchange.
Both contracts slid into bear markets earlier this month, as oversupply fears and risks to the global economic outlook weighed on investors.
On Wednesday, the U.S. Energy Information Administration (EIA) reported that domestic crude inventories rose by 1.6 million barrels in the week ending August 9. Analysts were calling for a weekly stockpile increase of 2.8 million barrels.
Recession Fears Continue to Mount
Commodity markets are heavily influenced by the the actual and perceived health of the global economy. When economic growth weakens, there’s a general fear that oil demand will decline as well.
On Wednesday, it was revealed that Germany became the second major European economy to slip into negative growth during the second quarter. German gross domestic product (GDP) contracted 0.1% quarter-on-quarter, marking its second slide in the last year.
Last week, the Office for National Statistics said the U.K. economy contracted 0.2% in the June quarter, confounding expectations of no change.
The U.S. economy remains on the right side of growth, but has clearly lost momentum recently. U.S. second-quarter GDP expanded 2.1% annually, higher than expected but well below the first-quarter rate. The Atlanta Federal Reserve expects weakness to persist into the current quarter.
Recession risks are top of mind for investors, and nowhere is this more apparent than in the bond markets. Long-dated U.S. and U.K. government bonds are trading at lower interest rates than their shorter alternatives, while Germany’s entire yield curve is in negative territory.
In the case of U.S. Treasurys, an inversion between the ten-year and two-year yields is a reliable indicator of recession. The last five times the two-year yield rose above the ten-year yield, recession followed.
This environment has made gold and silver ever more attractive. The traditional safe-haven investments have risen sharply this year, with gold returning above $1,500 a troy ounce in full force.
Gold for December settlement was last seen hovering just below $1,530.00 a troy ounce on the Comex division of the New York Mercantile Exchange.
Featured image courtesy of Shutterstock. Chart via Barchart.com.