Oil prices continued to fall on Friday, posting a fourth consecutive week of declines and falling to their lowest level since January amid mounting fears that an impending economic downturn will hurt global demand in energy markets.
The price of the US benchmark West Texas Intermediate fell about 5% to $79 a barrel, reaching its lowest point since January amid mounting fears of a recession. Meanwhile, the price of the international benchmark Brent oil fell below $87 a barrel, also en route to its lowest closing price since January.
Both WTI and Brent crudes were in technical oversold territory, with a fourth straight week of declines on Friday and the worst losing streak since December last year.
Widespread recession fears have weighed on energy prices, but have also hit the stock market hard recently, with the S&P 500 and the Dow Jones Industrial Average slipping back into bear market territory on Friday. Both major indices also hit new lows for the year amid the broad sell-off.
Also contributing to the decline in oil was the continued strength of the US dollar, which is considered a safe haven. The ICE US Dollar Index, which tracks the dollar against a basket of other currencies, rose nearly 1%, reaching its highest level since 2002.
With the Federal Reserve raising interest rates by 75 basis points ahead of its third consecutive policy meeting on Wednesday, central banks around the world have done the same by announcing rate hikes. Concerns about global economic growth have “turned into panic as a chorus of central bank pledges to fight inflation,” said Edward Moya, senior market analyst at Oanda.
“Central banks are poised to remain aggressive with rate hikes and that will weaken both economic activity and the short-term outlook for crude oil demand,” he describes, adding, “the dollar rally is about to reach another level that the could keep pressure on commodities.”
The S&P 500’s energy sector fell more than 6% on Friday for its worst day since May, driving further losses in recent weeks. Still, the sector has outperformed the benchmark S&P 500 index this year (-23%), up more than 20%, thanks to a surge in oil prices earlier this year.
But some investors may be looking for cash now as oil prices have fallen back to the ground. “Not only are there consumption concerns given the mounting recession risks, but this is a pretty crowded space with a lot of nervous cravings sitting on healthy profits from the year so far that they’re eager to hold onto,” said Vital Knowledge founder Adam Crisafulli .
Still, many experts remain cautiously optimistic about the oil price recovery in the long term. As sanctions against Russian energy are tightened during the ongoing war in Ukraine, global supply could be further limited, they point out. As a result, many of Wall Street’s largest banks are forecasting a rebound in prices in the fourth quarter of this year, especially if demand remains stable and inventories hold.
“Despite all the bearishness afflicting oil prices, economic activity is not falling off a cliff,” Moya argues. However, he predicts that if sustained sales continue next week, WTI crude could quickly fall to $74 a barrel.
“Oil prices will certainly come under renewed upward pressure as the European Union prepares to implement its sanctions against Russian oil in the coming months,” said Mark Zandi, chief economist at Moody’s Analytics. While some of Russia’s oil imports will be diverted from the EU to other countries, “it may be difficult to fill the oil supply void, at least quickly enough to avoid a grueling price hike,” he added. he to it.