Oil prices plummeted to the lowest level in months on Monday morning after worse-than-expected data from China showed its economy unexpectedly slowed last month—fueling concerns that weaker market conditions could temper oil demand and potentially spark a global recession this year.
The price of West Texas Intermediate slipped more than 5% Monday to $87 per barrel—its lowest level since January—while international benchmark Brent crude also fell more than 5% to a six-month low of about $93 per barrel.
The plunge came after overnight data from China showed that the nation’s economy slowed in July amid ongoing Covid lockdowns, property market uncertainty and global recession fears—prompting a surprise interest rate cut from the People’s Bank of China to help bolster consumer demand.
“It seems the reopening boost was both uninspiring and short-lived,” Oanda analyst Craig Erlam said in emailed comments Monday, blaming the “very disappointing” data for the morning selloff in commodity markets and saying the figures are a concern for oil demand—especially as China remains committed to its zero-Covid policy.
With Covid cases continuing to rise in China, Erlam expects that the downward pressure on oil prices could intensify in the coming weeks, but many experts predict prices should recover later in the year.
After reporting a record $48.4 billion profit for the second quarter, oil giant Saudi Aramco said in its earnings release this weekend that it expects oil demand will continue to grow for the rest of the decade—despite the downward economic pressures on short-term global forecasts.
Surging energy prices pushed U.S. inflation to its highest level in 40 years, but global recession fears have since helped oil prices fall from 14-year highs. The price of Brent crude has fallen more than 27% since its high in March. Nevertheless, prices are still up nearly 20% this year. The gains have been fruitful for oil companies, with the S&P 500 Energy Index soaring 41% this year, while the broader S&P has tumbled 11%.
Saudi Aramco’s “eye-watering” profits soared 90% from last year, notes Erlam.
What To Watch For
On Monday, Iranian officials said they will respond to a proposed deal that could help restore the nation’s global energy exports, likely pushing oil prices down further. Erlam says the deal could help oil prices slip below $90 and “perhaps even stay there.”
As oil prices tumble, gas prices have fallen in tandem. The average price at the pump fell for the 61st straight day on Monday to $3.92 per gallon, according to GasBuddy, down from an all-time high of more than $5 reached in March.