As oil prices fell Monday, experts say fears of an economic downturn are weighing on the commodity price.

West Texas Intermediate (WTI) fell 4.35 per cent to finish trading Monday at US$67.12 per barrel. However, during early afternoon trading Tuesday, WTI prices rose over three per cent to US$69.16 per barrel. 

“It's clear investment communities [are] more worried about the global economy slowing or they can say it's the West slowing,” Art Woo, a senior economist at BMO Capital Markets, said in an interview Tuesday with 

Two main factors driving some of the current economic uncertainty are concerns about future interest rate hikes and China’s slower-than-expected economic recovery, Woo said. 

As many central banks increased interest rates to quell inflation, Woo said higher borrowing costs are accomplishing their intended effects of slowing future economic activity and reducing financing activity. 

“This overall sentiment is likely to be maintained or these concerns are going to be maintained until we see a clear point where the global economy is passed the worst, or the recession isn’t going to be as bad as anticipated and that there’s light at the end of the tunnel,” Woo said. 

“I think that's the main reason why oil is simply underperforming as some other commodities probably have.”

In a report last week, Woo lowered his annual WTI price forecast for 2023 from US$85 per barrel to US$78 per barrel. 

Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners, said in an interview with BNN Bloomberg Tuesday that there is a narrative of a “recession due to inflation” and the U.S. Federal Reserve’s response of increasing interest rates. 

He said this narrative is “kind of like the boogeyman we’ve been battling with.” 

“Consistently, when I speak to people that talk to crude traders, the guys trading the physical barrels, consistently they say they're the most bullish they've been in years and their max long,” Nuttall said. 

“But they're fighting against those using oil as an instrument to reflect their negative view on the economy…and that pool of capital is 30 times bigger than the guys trading the physical barrel.” 

Ryan Bushell, president and portfolio manager at Newhaven Asset Management, said in an interview with BNN Bloomberg Monday that typically oil prices rise on higher demand ahead of the summer driving season in North America. 

“That hasn't been the case this time around,” Bushell said. 

“It would appear that the futures market is positioning itself for a pretty significant recession while the equity market is not doing that. We have a lot of conflicting signals today.” 


Despite economic uncertainty, Nuttall said there are currently no issues on the demand side of the market. 

“We clearly do not, yet at least, have a demand problem. Demand has been running at 1.8 million barrels per day so far this year,” he said. 

Additionally, Nuttall said the “supply has been a little bit higher” in the oil market as China’s reopening “hasn’t been living up to extraordinary lofty expectations” and more Russian barrels remain on the market than previously expected. 

Woo said he wonders about the degree to which oil demand will return to “the same degree of robustness as many were anticipating.”

“Maybe there's simply some changes that are taking place post-COVID-19,” he said.

In his report last week, Woo highlighted that weaker demand is “likely reflecting” lagging return to office work, lower levels of overseas tourism and increasing EV use. 

However, Woo said those are longer-term trends and the impact is hard to quantify.