Oil prices decline as recession fears overcome supply constraints

Oil prices inched lower in New York on Monday as investors balanced economic storm clouds that may portend a worldwide recession and diminish fuel consumption against the possibility of a tighter supply.

Brent oil futures declined 69 cents, or 0.7%, to $97.23 a barrel at 1:11 p.m. EDT (1711 GMT). The price of a barrel of West Texas Intermediate crude decreased by 36 cents, or 0.4%, to $92.57.

Charles Evans, president of the Federal Reserve Bank of Chicago, stated that there is a strong agreement inside the Fed to raise the target policy rate to around 4.5% by March and maintain it at that level.

Oil prices were constrained by stubbornly high-interest rates, which were designed to give the US central bank time to assess the impact of inflation and enable clogged supply chains to clear.

John Kilduff, the partner at Again Capital LLC in New York, stated, “There’s more gloom and doom from those people about what they’re going to do to the economy, because they’re not so confident they have inflation under control, and that’s the macro play that’s dragging on oil.”

Oil prices also suffered as the US currency strengthened for the fourth consecutive day. A rising currency increases the price of crude oil for international purchasers.

The possibility of OPEC+ reducing oil supplies restrained price decreases. However, indications that the group’s de facto leader, Saudi Arabia, will continue to service Asian clients at full capacity mitigated the anticipated impact of the reduction.

At least seven clients in Asia have been informed by Saudi Aramco that they would receive full contract amounts of crude oil in November, ahead of the main winter season, according to multiple people with knowledge of the subject.

The Organization of the Petroleum Exporting Countries and its allies, which include Russia, voted last week to reduce their daily output target by 2 million barrels.

Brent and WTI achieved their largest weekly percentage increases since March following the announcement of the cut.

Nevertheless, the drop has sparked a frenzy of activity on the options market, with more U.S. speculators taking a pessimistic attitude, according to CME Group statistics.

As of late last week, the European Union approved a G7 plan to put a price restriction on Russian oil exports, heightening concerns about still relatively healthy demand despite the waning epidemic and a potentially limited supply.

Analysts have cautioned that the complex new sanctions package might result in the shutdown of substantial shipments of Russian petroleum.

Monday’s Fitch Ratings report stated, “A recessionary economic outlook will reduce oil consumption.” “However, we anticipate short-term price volatility to remain elevated if geopolitical factors, such as more sanctions, lead to a decline in Russian exports.”

These political considerations may affect supply patterns and increase price volatility, according to Fitch.

In September, China’s services activity declined for the first time in four months due to the impact of COVID-19 limitations on demand and company confidence, according to statistics released on Saturday.

The slowdown in China, the world’s second-largest oil user after the United States, adds to rising fears about the possibility of a worldwide recession caused by multiple central banks hiking interest rates to battle soaring inflation.