Crude Tumbles On Recession Fears and Biden’s Petrol Tax Holiday

On Wednesday afternoon, 22 June, Fed Chairman Jerome Powell made his semi-annual testimony to the Senate Banking Committee. In his testimony, Powell highlighted that the Fed was “strongly committed” to bringing down inflation and that the American economy is in a strong position to handle the continued rate hikes. However, Powell has also noted that a recession is a “possibility” and that a “soft landing” would be difficult given the 40-year high inflation, and uncontrollable external factors affecting the prices of oil and food.

Wall Street executives aren’t optimistic about the future. Deutsche Bank CEO Christian Sewing has estimated a 50% chance of a recession happening, while Citi’s Kristin Bitterly has given a 40% forecast.

Meanwhile, President Joe Biden has also announced a 3-month gasoline tax holiday that would save consumers a tax of 18.4 cents per gallon of petrol and 24.4 cents for diesel.

Post Market

Increased fears of recession stoked by Powell’s testimony, coupled with the gasoline tax announcement, prompted the price of crude to head south. WTI fell up to 7% on Wednesday to $101.53, recovering slightly to $102.95 as of writing. August WTI futures stand at around $103.

Crude prices have cooled almost 22% from March’s high of 22%, although they are still a distance from the $92 range seen before the Russian invasion. 

While Biden’s gas tax holiday is meant to provide some relief from inflation, critics have also spoken out against the move, calling it a “gimmick” that would drive up demand – when there’s not enough supply – and conversely, cause oil prices to go up. 

Powell’s testimony was also followed by equities edging downwards, with the DJIA down 0.15%, the S&P 500 down 0.13%, and the Nasdaq down 0.15%. 

Investors are now advised to pay close attention to the upcoming US Initial Jobless Claims figures, which will be released on Thursday, 23 June at 15:30 (GMT+3).

As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.