Oil prices fell almost 6% this Friday, to an eight-month low, due to the fact that the dollar rose to a maximum of two decades and due to fears that the rise in interest rates will lead to the main economies of the world to a recession.
Brent crude oil was down $4.73, or 5.23%, at $85.59 a barrel at 12:30 p.m. Friday, while West Texas Intermediate (WTI) crude fell $5.04, or 6.04%, to $78.41. Dollars. Both contracts were in technically oversold territory with WTI on track for its lowest close since Jan 10, Brent since Jan 13.
For the week, WTI is down 7% and Brent 6%, the fourth straight week of declines for the benchmark indices and the first time a losing streak has occurred since December 2021.
After the US Federal Reserve raised interest rates by 75 basis points on Wednesday, central banks around the world followed suit, raising the risk of an economic slowdown.
“The crude oil market is under strong selling pressure as the US dollar remains on a strong upward trajectory amid further reduction in risk appetite,” analysts at energy consultancy Ritterbusch and Associates said.
The US dollar was on track for its highest close against a basket of other currencies since May 2002. A strong dollar reduces demand for oil because it makes fuel more expensive for buyers using other currencies.
On the supply side, efforts to revive the 2015 Iran nuclear deal have stalled as Tehran insists on shutting down UN nuclear watchdog investigations, a senior US State Department official said. United States, which alleviates expectations of a resurgence of Iranian crude exports.
“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening in recent days fueling fears of a significant hit to growth. Central banks now seem to accept that a recession is the price to pay for reining in inflation, which could hit demand next year,” said Craig Erlam, senior analyst at OANDA.
Other factors that could drag down energy prices are a tight market and OPEC, which is perfectly willing to further restrict supply, even if it does not meet the quotas it has set so far. In addition, a nuclear agreement between the United States and Iran does not seem closer and the mobilization of Russia could represent a risk for its supply.
With information from Reuters