23rd Sep 2022 19:38
(Alliance News) - Oil recorded further losses at the end of the week, as prices continued to fall, due to intensifying fears around a global recession, a strengthening dollar, and concerns around long-term demand.
The widespread monetary tightening over this week has fuelled fears around a "significant hit" to global growth, Craig Erlam at Oanda said.
Brent oil was quoted at USD85.79 a barrel late Friday, down against USD90.47 at the equities close on Thursday.
The decline dragged down bluechip oil majors BP PLC and Shell PLC, who closed Friday down 5.6% and 5.3% respectively.
On Monday, a third-successive 75 basis point hike by the Federal Reserve took the target range for federal funds rate to 3.00% to 3.25%.
The hawkish move by the Fed strengthened the dollar and added additional pressure on the already battered oil price.
The Swiss National Bank followed the Fed's lead and lifted rates by 75 basis points on Thursday. It also left more hikes on the table as it bids to fight a "renewed rise in inflationary pressure". This moved the policy rate out of negative territory to 0.50%, from minus 0.25%.
Further, the Bank of England raised UK interest rates by half a percentage point to 2.25% on Thursday afternoon.
"Central banks now appear to accept that a recession is the price to pay for getting a grip on inflation, which could weigh on demand next year," Erlam warned.
Nonetheless, supply concerns had been keeping the price around the USD90.00 mark.
The Brent oil price had recovered slightly on Tuesday, as energy supply constraints and easing lockdown curbs in China saw some confidence return for the oil outlook.
OPEC+ fell short of its output target by 3.6 million barrels per day in August in a further reminder of tight conditions in the energy market.
Additionally, millions of people in the Chinese megacity of Chengdu, Sichuan emerged from a Covid-19 lockdown on Monday that had disrupted businesses and forced residents to stay home for over two weeks.
Both events saw Brent oil trading more strongly in response, at around USD88.66.
Moreover, Russia's nuclear threats intensified concerns over supply constraints.US President Joe Biden Biden on Wednesday denounced President Vladimir Putin for making "overt nuclear threats against Europe" as part of his latest escalation, and warned that "a nuclear war cannot be won and must never be fought."
Nevertheless, the rising recession fears seemed to overweigh confidence in the oil price, continue to threaten energy demand, and are weighing on the sentiment of investors and traders.
This gave rise to speculation that the OPEC and other major producers could cut output as they fear prices are falling too fast.
By Abby Amoakuh; [email protected]
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