- Oil dropped on Monday as concern built over the chances for recession in Europe after Russia cut natural gas flows.
- WTI crude tumbled 2.37% to trade at $102.55 a barrel, reversing its gains last month.
- Pressure on oil markets is also growing as China recently resumed strict lockdown rules.
Crude oil prices tumbled more than 4% on Monday as fears of a recession accelerated after Russia cut off natural gas supply to parts of Europe via the Nordstream 1 pipeline for 10 days to carry out maintenance.
WTI crude fell 2.37% to trade at $102.55 a barrel, while Brent crude shed 1.86% to stand at $105.17 per barrel.
Recession fears have gained momentum in recent weeks as a combination of inflation and rising interest rates thrash the US economy, and it's weighing down on demand for oil, likely causing prices to fall.
The Federal Reserve kicked off its battle against fast price growth by lifting the benchmark interest rate by 75-basis points, but analysts expect more are round the corner. With fresh inflation data due later this week, it is likely going to keep markets on edge about what to expect next.
Oil also seems to have taken a beating on additional demand-sapping concerns fueled by strict lockdown rules return in China over fresh COVID-19 cases. "The latest crackdown has sent a cold chill across financial markets amid worries fresh supply chain issues and weakening demand will hit, just as hopes of recovery had crept up," Susannah Streeter, market analyst at Hargreaves Lansdown said.
Meanwhile, on the supply side with Russia curtailing gas to parts of Europe, it's wiped out any sense of optimism about the economic outlook. Though it is a temporary halt, worries that the natural-gas shutdown will become permanent are taking root, as Russia responds to Western sanctions.
EU economists previously said that the eurozone will likely fall into recession if Russian gas supply stops.
"Oil is of course not immune to a recession and weaker oil demand and will trade lower unless we loose larger amounts of oil from Russia. And that is of course a constant uncertainty," said Bjarne Schieldrop, chief commodities analyst at SEB Group.
The drop in oil prices reverses what much Wall Street predicts about the future of the commodity. Top firms including Goldman Sachs and UBS have made bullish calls for where oil is headed, while Citi takes predicts oil prices will nosedive by the end of the year.