By Adedapo Adesanya
Investors’ worry that economic storm clouds could foreshadow a global recession and erode fuel demand pulled down crude oil by nearly 2 per cent on Monday.
The Brent crude futures settled at $96.19 a barrel after losing $1.73 or 1.8 per cent as the US West Texas Intermediate (WTI) crude futures shed $1.51 or 1.6 per cent to trade at $91.13 a barrel.
Many see demand destruction happening despite banks’ latest price forecasts, most of which see Brent returning to a three-digit territory before the year’s end.
Prices also fell amid comments from US Federal Reserve officials about rising interest rates and their effect on the economy.
Fed Vice Chair Lael Brainard said the economy is starting to feel more restrictive monetary policy, but the full brunt of the central bank’s interest rate hikes will not be apparent for months.
Brainard’s comments followed remarks by Chicago Fed President Charles Evans that there was a strong consensus at the US Fed to raise the target policy rate to around 4.5 per cent by March and hold it there.
Oil prices also struggled under a strengthening US Dollar, which rose for a fourth session. A stronger dollar makes crude more expensive for buyers who hold other currencies.
Data out of China also affected the market as services activity in the world’s largest importer contracted for the first time in four months during September as COVID-19 restrictions hit demand and business confidence.
The Prospect of tightening oil supplies by the Organisation of the Petroleum Exporting Countries and allies, including Russia, together known as OPEC+, however, limited declines in prices.
The alliance decided last week to lower its output target by 2 million barrels per day.
Signs that the group’s de facto leader, Saudi Arabia, will continue to serve Asian customers at full levels lowered expectations of the cuts’ impact.
Analysts also noted that the OPEC+ cuts are bullish for crude, although some pointed out that there is still a lot of uncertainty on international markets. Some of that would disappear when the European Union embargo on Russian crude comes into effect and when the G7 oil price cap on Russian oil kicks in.
Modupe Gbadeyanka