By Adedapo Adesanya
Brent crude dropped below the $85 per barrel mark as prices fell by $2 a barrel on Monday, pressured by a strengthening US Dollar as market participants awaited details on new sanctions on Russia.
The international crude futures went down by $2.09 or 2.4 per cent to $84.06 per barrel as the US West Texas Intermediate (WTI) crude futures declined by $2.06 or 2.3 per cent to $76.71 per barrel.
The US Dollar surged to a high not seen since 2002 on Monday, pressuring demand for oil priced in the American currency. The impact of a strong dollar on oil prices is at its most pronounced in more than a year.
The surge against other currencies means dollar-denominated assets such as oil have grown more expensive for investors holding foreign currencies and have weighed on prices.
Interest rate increases by central banks in numerous oil-consuming countries have raised fears of an economic slowdown that could squeeze oil demand.
The US Federal Reserve last Wednesday raised benchmark interest rates by another three-quarter of a percentage point and indicated it would keep hiking well above the current level.
In its quest to bring down inflation running near its highest levels since the early 1980s, the central bank took its federal funds rate up to a range of 3 per cent-3.25 per cent, the highest it has been since early 2008, following the third consecutive 0.75 percentage point move.
The Bank of England followed as it voted to raise its base rate to 2.25 per cent from 1.75 per cent on Thursday, lower than the 0.75 percentage point increase expected by many traders.
Inflation in the United Kingdom dipped slightly in August but, at 9.9 per cent year-on-year, remained well above the bank’s 2 per cent target.
Disruption from the Russia-Ukraine war also hit the oil market, with European Union sanctions banning Russian crude set to start in December and a plan by G7 countries for a Russian oil price cap to tighten supply.
The market will also anticipate what the Organisation of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known as OPEC+, will do when they meet on October 5, having agreed at their previous meeting to cut output modestly.
However, OPEC+ is producing well below its targeted output, meaning that a further cut may not have much impact on supply.
Data last week showed OPEC+ missed its target by 3.58 million barrels per day in August, a bigger shortfall than in July.
