Oil prices fell to a nine-month low on Friday as recession fears swept through global risk assets and the U.S. dollar continued its ascent this year to hit a new two-decade high against major currencies.
West Texas Intermediate crude fell 3.8% to $80.35 a barrel, the lowest price since January. The decline was later reduced to 3.4%. Brent, the international benchmark, fell 3.2% to $87.41, its lowest price since January.
WTI was heading for a weekly loss of more than 5% and Brent was heading for a decline of more than 4% for the week.
“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening over the past two days fueling fears of a hit to growth,” said Craig Erlam, senior market analyst at Oanda, in a note. “Central banks now seem to accept that a recession is the price to pay for bringing inflation under control, which could weigh on demand next year.”
The Federal Reserve on Wednesday and the Bank of England and the central banks of Norway and Switzerland on Thursday each raised interest rates to deal with high inflation as energy and food prices rose this year. The Federal Open Market Committee, which aims to slow activity in the world’s largest economy, is expected to extend its rate hike cycle through 2023 and expects to hit a maximum interest rate of 4.6%.
Recession worries also hurt stock markets in Europe and Asia on Friday, and U.S. stock futures were in the red.
Oil prices also fell as the US dollar continued to climb. The U.S. dollar index rose 0.8% on Friday, topping 112 to hit a new 20-year high. Dollar-denominated oil prices may be penalized by gains in the value of the greenback, as this makes the commodity more expensive for foreign currency holders to buy.
The index, which tracks the performance of the greenback against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, was on track to rise more than 2 % this week. The gains were fueled by the Fed’s rate hike this week of 75 basis points, the third straight meeting to mark a huge hike in the fed funds rate. Rising Treasury yields following the Fed’s latest rate hike fueled demand for dollars.
Meanwhile, European Union officials are racing to reach an agreement on a Russian oil price cap after President Vladimir Putin escalated Moscow’s aggression against Ukraine, according to a Bloomberg report on Friday. . The EU embargo on Russian oil transported by sea is set to begin on December 5.