Oil prices fell on Wednesday as a renewed fear over recession and a strong US dollar weighed on the commodity.
Brent crude, the international oil benchmark, fell as low as $88.50 a barrel, a 4.6 per cent drop on the day, and a seven-month low dating back to before the Russian invasion of Ukraine. It was the first time Brent had dropped below the $90 a barrel since February.
West Texas Intermediate, the US marker, fell as much as 5.2 per cent to $82.37 a barrel, the lowest since January.
Wednesday’s fresh falls come only days after Opec+’s decision on Monday to cut crude supply to prop up prices, defying calls from western governments battling to curb inflation in the face of a mounting global energy crisis.
The producer group will cut 100,000 barrels a day from supply from October. While only a fraction of the 100mn b/d oil market, it reversed an increase of the same amount agreed last month following a visit to Jeddah by US president Joe Biden.
The decision came after a decline in oil prices in recent weeks amid growing fears of recession in Europe and weaker oil demand from China because of its Covid-19 lockdowns.
The message from Opec+ was that it will protect oil prices, which duly rallied on Monday. However, a fall in potential demand because of recession continues to weigh on traders.
“The spectre of a demand-sapping recession across the western world is closer to becoming reality as soaring inflation and rising interest rates dents consumption,” said Stephen Brennock of PVM, a brokerage. “Simply put, the [Opec+] cut is being inferred by market players as a clear sign of the deteriorating demand outlook,” he added.
The strength of the US dollar, which is typically seen as a headwind to commodity prices, is also weighing on oil. The dollar index, which tracks the greenback against a basket of currencies, has hit a two-decade high.
“Any rallies continue to get sold. The Opec cut was ignored,” analysts at Oilytics said. The strong greenback “continues to be the major headwind for most commodities”, they added.
The drop in prices is being cheered by the Biden administration ahead of midterm elections in November. Despite pledges to shift the US economy away from fossil fuels, Biden has pushed domestic suppliers to increase production while releasing record amounts of crude from the nation’s strategic stockpile in an attempt to tame soaring prices at the pump.
The US national average petrol price has fallen sharply in recent weeks to $3.76 a gallon after topping $5 a gallon in June.
