Santos and Woodside on watch after oil prices crash 10%

Oil prices have taken a major tumble…

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An image showing a red graph with a white arrow pointing downwards above three black barrels of oil to represent falling oil prices and ASX 200 energy shares.

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Key points

  • It could be a tough day for energy shares such as Santos and Woodside
  • This follows a sharp decline by oil prices overnight
  • Prices were down as much as 10% amid growing recession fears

It could be a tough day for oil shares such as Beach Energy Ltd (ASX: BPT), Santos Ltd (ASX: STO), and Woodside Energy Group Ltd (ASX: WDS) after oil prices crashed overnight.

What happened?

Traders were selling oil overnight amid concerns that many major economies, including Australia, could fall into a recession and lessen demand for petroleum products.

According to Bloomberg, the West Texas Intermediate (WTI) crude oil price fell more than 10% before eventually closing the session 8.2% lower at US$99.50 per barrel. This is the first time the WTI crude oil price has traded below US$100 in over two months.

It was a similar story for Brent crude oil, which ended the day 9.45% lower at US$102.77 a barrel.

Recession fears grow

The risk of a recession in the United States continues to increase, with Bloomberg Economics now estimating that there is a 38% probability of one occurring.

Elsewhere, according to CNBC, the team at Nomura released a research note saying that it expects recessions in the euro zone, the UK, Japan, South Korea, Australia and Canada next year.

Nomura's chief economist, Rob Subbaraman, said: "One other thing I point out when you have many economies weakening, you can't rely on exports for growth. That's another reason why we think this recession risk is very real and will likely happen."

Where are oil prices heading?

Also weighing on oil prices and energy shares was a note out of Citi which warned that this could be the start of much greater declines. In fact, its analysts believe oil prices could fall into the US$60s a barrel if a recession occurs.

Citi said: "In a recession scenario with rising unemployment, household and corporate bankruptcies, commodities would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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