Recession playbook may not work on oil this time | Rigzone

The recession “playbook” may not work on the oil sector this time around, a new report from BofA Global Research has pointed out.

“We recognize that all recessions over the past 20 years have had a destructive impact on oil demand and prices – in percentage terms, WTI has fallen by around 40-80%, measured on the eve of those respective recessions “, noted BofA in the report, which was sent to Rigzone recently.

“Applying such a drop to the current Brent oil price would leave us with just over $30 a barrel at the bottom. However, our colleagues at Commodity Research have already highlighted a much smaller decline to ~$75 a barrel in their recessionary scenario – given the much tighter spare capacities following the destruction of supply exceeding the destruction of demand following Russia’s invasion of Ukraine,” BofA added in the report.

As of this writing, the price of WTI is trading at $89.38 per barrel, while the price of Brent crude oil is trading at $95.89 per barrel. Oil surpassed $100 a barrel for the first time in years as Russian forces escalated a conflict with Ukraine in February.

In its Global Economic Prospects report released in July, the International Monetary Fund (IMF) noted that “a tepid recovery in 2021 was followed by increasingly bleak developments in 2022 as risks began to materialize. “.

“Global output contracted in the second quarter of this year, driven by slowdowns in China and Russia, while US consumer spending came in below expectations,” the report said.

“Several shocks hit a global economy already weakened by the pandemic: higher-than-expected inflation around the world, notably in the United States and major European economies, triggering tighter financial conditions; a worse-than-expected slowdown in China, reflecting Covid-19 outbreaks and lockdowns; and other negative fallout from the war in Ukraine,” the report adds.

The report pointed out that the IMF’s baseline forecast calls for a slowdown in growth from 6.1% last year to 3.2% in 2022. This is 0.4 percentage point lower than in the IMF Outlook. global economy in April 2022, the IMF pointed out.

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