WTI declines below $88.00 amid headwinds of US recession and China’s Covid worries soar

• A significant rise in the US oil and gasoline stockpiles has impacted oil prices.
• Goldman Sachs noted that the chances for the US shifting into recession stand at 35%.
• A decline in China’s inflation rate may push the PBOC to policy easing ahead.

West Texas Intermediate (WTI), futures on NYMEX, have displayed a vertical fall after failing to sustain above the psychological support of $90.00. The oil prices have slipped sharply below $88.00 as oil stockpiles reported by the US American Petroleum Institute (API) have accelerated last week. Also, growing US recession worries and a strong resurgence of Covid-19 in China have raised concerns over oil demand prospects.

Meanwhile, the US dollar index (DXY) has displayed a less-confident pullback after printing a fresh seven-week low at 109.35. The DXY is expected to remain on the tenterhooks as investors have shifted their focus toward the inflation figures and the outcome of the mid-term elections.

On Tuesday, the US API agency reported a build-up of oil stockpiles by 5.6 million barrels for the week ending November 4. Also, gasoline inventories rose by about 2.6 million barrels. Subdued demand in the US economy for oil has weighed significant pressure on oil prices.

Meanwhile, analysts at Goldman Sachs noted that the chances of the US economy entering into a recession in the next year stand at 35%. The reasoning behind escalating recession fears is the extreme deviation in desired inflation target and current inflation rate, aggressive Fed policy tightening, and exceptionally uncertain conditions in terms of domestic US politics and geopolitics.

In China, the administration’s failure in containing the resurgence of Covid-19 cases has trimmed oil demand projections. Odds for China’s reopening have shifted to the back foot as the government is carry-forwarding its no-tolerance approach and the extent of cases is not displaying a similar correlation.

In Tokyo, China’s inflation rate for October significantly dropped to 2.1%. This might result in monetary easing by the People’s Bank of China (PBOC), which might support the oil prices.