Citigroup says oil could slide to $65 a barrel in a recession

Worries of a global recession are pummeling the price of oil, and should those fears be realized this year crude could cave to $65 a barrel, according to Citigroup.

"Thus far, we're not in a recessionary environment," Ed Morse, the bank's global head of commodity research, told CBS MoneyWatch. The economies of certain countries are slowing more than others, but the world as a whole is not in a recession — a scenario that's more unlikely than not this year, he said. 

Morse and his team currently offer a 40% probability of a global recession, defined as two consecutive quarters of a collective drop in the world's GDP.

Concerns that a slowdown in the global economy could dent the world's appetite for crude had oil futures falling below $100 a barrel on Tuesday for the first time since May 11, and remaining lower on Wednesday.

Thoughts earlier this year that Russia's invasion of Ukraine would disrupt global oil supplies, however, have not panned out. Instead of the conflict and resulting sanctions limiting the supply of oil, it has created a two-tiered market, according to Morse. "What Russia's managed to do is find new customers, and they are selling at a discounted price of 30% to 40%," the analyst said. 

As G-7 nations and the European Union have phased out imports of Russian oil, Moscow has increased its exports of crude and petroleum products at a discount to other buyers, including China and India. Europe, meanwhile, has been bidding up the price of oil produced by other countries amid sanctions prohibiting Russian crude. Saudi Arabia decided against making up the shortfall from Russia, Morse noted. 

The drop in oil prices follows a steady decline in U.S. gas prices from record highs set in June, with regular gasoline now selling for less than $5 a gallon at a majority of U.S. stations.

Prices should be falling back under four bucks a gallon at thousands of stations across the country in days and weeks ahead, according to GasBuddy analyst Patrick De Haan. 

"Most of the stations that could fall to $3.99 or less will be in states like South Carolina, Georgia, Mississippi, Louisiana, Arkansas, Texas, Alabama, Tennessee, North Carolina ..." DeHaan clarified in a tweet.

The national average for a gallon of gas on Wednesday stood at $4.78, down 9 cents over the last week in a price decline AAA attributes mostly to fewer people fueling up over the past two weeks.