Crude oil, in a rapid reversal, entered a bear market, off over 20% from its October high and falling in tandem with stocks.
After falling 1% Wednesday to $65.57 per barrel, crude has pulled back exactly 22.5% from a seven-year high of $84.65.
|USO||UNITED STATES OIL FUND L.P.||47.04||-0.87||-1.82%|
However, oil watchers are skeptical this bear market has staying power.
“A real bear market was during the COVID-19 shutdown you had an environment where we had a production war between Saudi Arabia in Russia and the closing of the global economy,” Phil Flynn, a senior energy analyst at The PRICE Futures Group and a FOX Business contributor, explained. “This bear market sell-off in oil was created after a 12% drop in just a couple of days that mainly happened during a period with extremely light volume because of the holiday. When you have that type of a sell-off during a holiday you have to be skeptical.”
|BNO||UNITED STS BRENT OIL FD LP UNIT||18.37||-0.33||-1.76%|
On Wednesday, the CDC confirmed the first U.S. case of the omicron variant in California, raising fresh questions about future demand that could force OPEC Plus to pause production, Flynn adds.
President Biden ordered a draw from the Strategic Petroleum Reserves last month to combat skyrocketing energy prices while also continuing to appeal to OPEC to boost production. The cartel, which has not engaged in any changes, is meeting on Thursday.
While Americans are dealing with the highest inflation in 31 years, a bear market for crude may not provide the long-term relief the country is looking for as gas prices hit a seven-year high.
Federal Reserve Chairman Jerome Powell acknowledged this week inflation is no longer “transitory,” signaling higher prices for energy, food and other items may be with us well into 2022.
“So I think the word transitory has different meanings to different people,” Powell told Sen. Pat Toomey, R-Pa. “To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
Read More: Oil’s bear market may be a short one