Oil prices fell to their lowest levels of the year as concerns about the health of the economy overshadowed concerns about new restrictions on Russian energy.
The drop in oil prices over the past two days is good news for consumers, which means that gas pump prices should continue their recent decline.
U.S. crude fell 3.5% to $74.25 a barrel on Tuesday – the lowest since December 23, 2021. That leaves oil down 43% since briefly peaking at $130 a barrel on March amid fears of a Russian invasion of Ukraine.
Brent crude, the global benchmark, lost 4% on Tuesday to around $79.50 a barrel.
The oil sell-off comes after the West hit Russia with new restrictions that, at least, do not appear to be damaging the global energy market.
The European Union imposed a ban on oil imports from Russia by sea on Monday, while the West imposed a $60 tariff on Russian oil. Both actions are designed to harm Russia’s ability to finance its war in Ukraine, not to hurt consumers by Moscow’s reduction in oil production.
“Russian oil is still on the market. Right now, it looks like Russia is ready to play ball,” said Robert Yawger, vice president of oil futures at Mizuho Securities.
Yawger said there is “no doubt” the energy market is relieved that the price is not below $60. A lower cap may have convinced Russia to retaliate by severely cutting supplies.
“They scored well. We don’t want to kill the golden goose, just bring it back,” Yawger said.
The energy market reaction is good news for consumers who are finally getting relief at the gas pump.
The national average price for regular gasoline fell two cents to $3.38 a gallon on Tuesday, according to AAA. Gas prices fell 14 cents last week and 42 cents in a month. The national average was almost unchanged from a year ago when it hit $3.36 a gallon.
Despite the drop in energy prices, OPEC+ is sticking to its game plan. The oil cartel on Sunday announced plans to stick with the cut in oil production instead of taking measures to take more supplies offline.
Recession fears continue to roil financial markets, including not only the oil market but also the stock market. US stocks fell sharply on Tuesday, the second day in a row of big losses.
Stronger-than-expected reports on jobs, business orders and service sector activity raised concerns that the Federal Reserve will have to act more aggressively to quell inflation. Some Fed officials have expressed support for raising rates to 5% or more next year.
“This environment of potentially 5% interest rates is really freaking people out,” Yawger said.