Business Maverick: Oil’s Latest Slump: Goodbye Inflation Trade, Hello Recession

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For much of 2022, oil steadily rallied as investors piled into bets that the world’s most liquid commodity would surge as inflation climbed. On Tuesday, the trade showed its clearest signs yet of unraveling.

Brent futures plunged by more than $10 a barrel, succumbing to the third-largest daily retreat on record. West Texas Intermediate fell below $100 for the first time since May 11. Prices slumped again on Wednesday.

Timespreads — how much traders will pay to get barrels more immediately — continue to trade near records, suggesting an urgent demand and tight supplies. Between 1988 and the end of 2020, Brent futures shed more than $10 a barrel on only three occasions. They’ve done it twice since March, during which time there have been more than a dozen $5 a barrel moves. The Bloomberg Dollar Spot index hit the highest since March 2020 on Tuesday.

The global benchmark is trading below its 50- and 100-day moving averages, while its 5-day and 100-day markers formed a bearish crossover pattern this week. In US crude, breakdown of support levels around $105.50 was followed by a snowball effect as prices pierced through more key levels at $103 and $101, said Fawad Razaqzada, market analyst at City Index.

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