Oil prices lowered about 5 percent to an eight-month low on Friday. Moreover, the U.S. dollar reach its strongest level in more than two decades and on fears increasing interest rates will tip major economies into recession, cutting demand for oil.
Brent futures inched down $4, or 4.4 percent, to $86.46 a barrel, while U.S. West Texas Intermediate (WTI) crude dipped $4.45, or 5.3 percent, to $79.10.
This is places both benchmarks into technically oversold territory and WTI on track for its lowest close since Jan. 10 and Brent on track for its lowest close since Jan. 13.
It was the fourth straight week of decreases for both benchmarks. The first time has happened since December. At the same time, both were in technically oversold territory, with WTI on track for its lowest settlement since Jan. 10 and Brent for its lowest since Jan. 14.
U.S. gasoline and diesel futures also dropped more than 5 percent.
The U.S. Federal Reserve heightened interest rates by a hefty 75 basis points on Wednesday. Central banks around the world followed suit with their own boosts, raising the risk of economic slowdowns.
“Oil tanks as global growth concerns hit panic mode given a chorus of central bank commitments to fight inflation. It seems central banks are poised to remain aggressive with rate hikes and that will weaken both economic activity and the short-term crude demand outlook,” senior market analyst at data and analytics firm OANDA Edward Moya stated.
The U.S. dollar was en route for its highest close against a basket of other currencies since May 2002. A strong dollar diminishes demand for oil by making the fuel more expensive for buyers using other currencies.
“We had the dollar exploding higher and pushing down dollar-denominated commodities like oil and growing fears over the looming global recession that is coming as the central banks raise interest rates,” partner at Again Capital LLC in New York John Kilduff said.
The euro zone’s downturn in business activity strengthened in September, according to a survey. This is suggesting a recession looms as consumers rein in spending and as governments urge energy conservation following Russia’s moves to cut off European supply.
Wall Street’s main indexes fell more than 2 percent on Friday as investors feared the U.S. Federal Reserve’s hawkish policy actions to quell inflation could trigger recession and dent corporate earnings. The dollar index got its highest in over two decades, pressuring oil prices.
Russia launched referendums targeted annexing four occupied regions of Ukraine, raising stakes of the war in what Kyiv called a sham.