Stock Market

U.S. oil prices drop over 5% to their lowest since January on recession fears

Oil prices dropped sharply Friday, with U.S. crude down more than 5% to their lowest since January, as recession fears gripped financial markets, sinking equities and government bonds, while contributing to a further rise by the U.S. dollar.

Price action
  • West Texas Intermediate crude for November delivery



    fell $4.66, or 5.6%, to $78.83 a barrel on the New York Mercantile Exchange, with prices for the front-month contract down nearly 7% for the week, eying the lowest settlement in about eight months.

  • November Brent crude
    the global benchmark, dropped $4.22, or 4.7%, at $86.24 a barrel on ICE Futures Europe, trading at its lowest since January, down nearly 6% for the week. The most actively traded December contract

    declined $4.24, or 4.7%, to $85.29 a barrel.

  • Back on Nymex, October gasoline

    fell 6.2% to $2.3595 a gallon, while October heating oil

    shed 5.4% to $3.229 a gallon.

  • October natural gas

    lost 3.3% to $.6.852 per million British thermal units.

Market drivers

Global equities fell sharply Friday, with benchmark stock indexes also logging steep losses on Wall Street.

“Oil is trading down in sympathy with the broader financial markets, as traders grapple with fears of a massive recession,” Manish Raj, chief financial Officer at Velandera Energy Partners, told MarketWatch. “Geopolitical tensions in monstrous proportions, inflation at a multi-decade high and the dollar surging unabated are all certain to cause demand destruction for oil.”

“Geopolitical tensions in monstrous proportions, inflation at a multi-decade high and the dollar surging unabated are all certain to cause demand destruction for oil.”

— Manish Raj, Velandera Energy Partners

The Federal Reserve earlier this week delivered another outsize interest rate hike and signaled it would drive rates higher than market participants had previously anticipated. A number of other global central banks also delivered rate increases this week, underlining investor worries about the economic outlook.

“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening over the last couple of days fueling fears of a significant hit to growth,” said Craig Erlam, senior market analyst at OANDA, in a note.

“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,” he said.

The market, however, remains tight, Erlam said, and the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have signaled they’re willing to restrict supply further even as they fail to deliver on current production quotas.

Progress toward a restored nuclear deal for Iran, which would allow it to resume exports, also appears to have stalled, Erlam noted, while worries remain over Russia’s escalation of the war in Ukraine.

Concerns that Russia’s moves to step up its war effort in Ukraine could slow energy demand had provided some support for oil prices on Thursday.

Read: Why Europe’s efforts to cap Russian oil prices and ban imports are doomed to fail

Meanwhile, U.S. natural-gas futures declined along with oil. Traders are watching for any further Caribbean storm developments that could disrupt energy production in the Gulf of Mexico.

Tropical Depression Nine, which is expected to intensify into a hurricane next week, is expected to head into the eastern Gulf of Mexico.

Read: How investors may benefit from a dive in natural-gas prices as winter looms

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