By Barani Krishnan

Investing.com — Monday’s crude prices were volatile, rising at times but then falling back to finish unchanged as fears about the U.S. recession and an impending U.S. election swayed speculations of runaway demand in advance of Memorial Day which marks the end for peak driving time in the United States.

New York’s July delivery traded oil settled just one penny lower at $110.29 per barrel. After rising slightly over $1.60 (or 1.5%) at one time, it was just $1.60 higher. WTI fell just $1.10 or 1%.

London-traded  crude futures for August delivery settled at $110.78 per barrel, up 79 cents, or 0.8%.

Analysts pointed to China’s restrained demand for oil and fears of a U.S. economic slowdown for Monday’s subdued performance in crude.

“The reopening of Shanghai is a bullish development for oil but recession fears could be stopping prices from rallying much higher,” said Craig Erlam of online trading platform OANDA. “The cost-of-living crisis has arrived and higher oil prices will further exacerbate the pain on household budgets and eventually weigh on demand.”

China’s demand — or otherwise — for oil is so integral now that it could be the overriding factor for determining how crude prices perform for the rest of 2022, said International Energy Agency chief Faith Birol.

“We have only one hope that we don’t have big trouble in the oil markets in summer, which is hoping…that the Chinese demand remains very weak,” Birol told CNBC in an interview held on the sidelines of the World Economic Forum in Davos.

At the Davos Summit, the concerns of world’s wealthy were topped by multiple threats to the global economic system. Some even warned of a global recession. Kristalina Georgieva (Managing Director of the International Monetary Fund) said that while she doesn’t anticipate a recession in major economies, it is possible.

That weighed on the sentiment for oil despite relatively higher demand expected between Friday and next Monday’s Memorial Day holiday.

“The full effect of [the] Ukraine war has not been felt yet, the upward price pressure for industrial inputs is still to come,” Atlanta Fed President Raphael Bostic said at a live-streamed event. “We have a little more to go raising interest rates in the next several months. This could be true. [the] Fed needs to go super hard on rate hikes, but that is not the baseline.”

Federal Reserve has declared that the Fed will continue to raise interest rates and may even slow down U.S. economic growth if it is necessary to reduce inflation from highs of 40 years ago.

After contracting 3.5% in 2020 from disruptions forced by the coronavirus pandemic, the U.S. economy expanded by 5.7% in  2021, growing at its fastest pace since 1982. However, inflation is growing at the same rate as the economy or faster than the economy. Some price gauges show growth rates of up to 8.5% per year.

U.S. economic growth has been declining since this year’s inception. In the first quarter of 2018, it was negative 1.4%. This is due to the Russia-Ukraine crises that led to uncontrolled inflation in food and energy. 

The United States would technically be in recession if it does not recover to positive territory during the second quarter. According to the law, two consecutive negative quarters are required to cause a recession.

The Fed’s own tolerance for inflation is just 2% per year. After keeping rates near zero for nearly two years due to the pandemic and raising them by 25% in March, the central banks increased their rate by a quarter point in May, and then by another half-point in March. After assessing the economic impact, the central bank stated that it would likely make two more half-point increases in June or July. However, some central bank policymakers have suggested that a three quarter point increase be made to lower inflation.