Oil Plunges 5% on Slowing Growth, Recession Fears
By Adedapo Adesanya
Oil dipped by 5 per cent on Friday on the back of heightened concerns about slowing economic growth and recessions looming, with the Brent futures falling by $4.31 or 4.8 per cent to $86.15 a barrel, and the US West Texas Intermediate (WTI) crude futures declining by $4.75 or 5.7 per cent to $78.74 per barrel.
On a week-on-week basis, while the Brent depreciated by about 6 per cent, the WTI went down by about 7 per cent. It was the fourth straight week of declines for both benchmarks, the first time since last December.
Oil prices jumped earlier in the week when President 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 2.
Mr 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 per cent, the highest rate since the start of the 2008 financial crisis.
The US Dollar was on track for its highest close against a basket of other currencies since May 2002. A strong greenback reduces demand for oil by making the fuel more expensive for buyers using other currencies.
Investors feared the US Federal Reserve’s hawkish policy actions to quell inflation could trigger a recession and dent corporate earnings.
The euro zone’s downturn in business activity deepened in September, a survey showed, suggesting a recession looms as consumers rein in spending and as governments urge energy conservation following Russia’s moves to cut off European supply.
On the supply side, efforts to revive the 2015 Iran nuclear deal have stalled as the Middle East insists on the closure of the UN nuclear watchdog’s investigations, a senior US State Department official said, easing expectations of a resurgence of Iranian crude oil exports.