Oil prices dipped by 5% early on Friday, with the U.S. benchmark slumping to the lowest level since January, on the back of heightened concerns about slowing economic growth and recessions looming.
As of 10:06 a.m. ET on Friday, WTI Crude had dipped below the $80 a barrel mark, and was trading down by 5.58% at $78.83 per barrel. Brent Crude, the international benchmark, was at $86.11, down by 4.81% on the day.
The front-month WTI contract was headed to a drop of more than 5% this week, in which fears of slowing oil demand amid possible recessions trumped the escalation of the Russian war in Ukraine.
Oil prices jumped earlier this week when Vladimir Putin ordered a “partial mobilization” of 300,000 men to send to fight in Ukraine in the first mass draft in Russia since World War II. Putin also hinted at the possibility of using “any means” to defend Russia, which analysts interpreted as a threat he could use nuclear weapons.
Yet, oil prices fell later in the week on the strong dollar and fears of a recession intensified with major central banks hiking interest rates again to fight inflation. This week, the Fed raised the key rate by another 75 basis points for a third consecutive time. On the following day, the Bank of England raised rates by 50 basis points to 2.25%, the highest rate since the start of the 2008 financial crisis.
“Crude oil meanwhile headed lower after spending most of the week confined to a relative tight range with the Powell versus Putin battle (demand versus supply) not having a clear winner until Friday when both Brent and WTI dropped as the FOMC driven slump in risk appetite and growth angst was dialed up a notch as the dollar and yields continued to surge higher,” Ole Hansen, Head of Commodity Strategy at Saxo Bank said in a weekly commodities note on Friday.
“A difficult and potentially volatile quarter awaits with multiple and contradictory uncertainties having their say in the direction. While the risk to growth is being priced in, the market has left it to another day to worry about the supply-reducing impact of an EU embargo on Russian oil and fuel as well as a part reversal of the US selling 180 million barrels from its Strategic Reserves,” Hansen added.
By Charles Kennedy for Oilprice.com
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