LAST UPDATE 22.34
Oil prices closed sharply lower amid a widespread sell-off in global asset markets, as investors appear to appreciate that a recession is getting closer.
In particular, the Brent U.S. crude for November delivery was down 4.8% at $86.15 a barrel, having lost $4.31, closing at its lowest level since January, down 5.7% for the week. Meanwhile, the most active contract for December delivery lost $4.50, or 5%, to $85.03 a barrel.
Meanwhile, US crude WTI saw its price collapse below $80 for the first time since last January, with the November contract closing at $78.74 a barrel, down 5.7% or $4.75. On a weekly basis, it fell by 7.1%.
At the same time, global stocks are also falling, while the dollar index has soared to its highest level in two decades, further intensifying pressure on crude.
The already negative investor sentiment of the recent period has worsened further in recent days, especially after the Fed meeting on Wednesday.
The news from the Fed wasn’t its third straight giant 75 basis point hike in interest rates – which markets had discounted – but the final level they’ll reach and how long they’ll stay elevated, according to estimates by members (the so-called dot plot).
At the same time, after the meeting, Fed Governor Jay Powell essentially said that he is willing to risk a mild recession and a significant increase in unemployment in order to control the rapid rise in prices.
The picture worsened further today as data showed a slump in business activity across the eurozone deepened in September and its economy is likely to slip into recession as consumers cut spending amid a cost-of-living crisis.
In particular, the S&P Global composite PMI, considered a good indicator of the economic situation, fell again to 48.2 points in September from 48.9 points in August.
According to UBS’s Giovanni Staunovo, weak European PMIs, combined with concerns about the impact on growth of aggressive monetary policy tightening in the US and Europe are weighing on risk assets, also affecting oil prices.
In the same vein, Tamas Varga, oil analyst at PVM Oil Associates, points out that “recession fears, further interest rate hikes and the resulting strengthening of the dollar outweigh geopolitical tension.”
According to him, “Oil’s upside will be limited as long as the dollar remains strong, although Putin’s referendums in Ukraine could further increase Russia-West tension, especially if Kiev’s allies provide additional aid to the country to recover these lands”.
“Monstrous geopolitical tensions, multi-decade high inflation and a rising dollar are bound to cause disruptions in oil demand,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.