Oil Sinks Below $80 as Global Interest Rate Hikes, Recession Fears Threaten Demand
Oil prices fell to their lowest levels since January 2022 as a series of interest rate hikes around the world raised fears of a global recession, which would likely lead to lower demand for fuel.
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The price of West Texas Intermediate sank below $80 a barrel on Sept. 23, setting the stage for a fourth straight week of declines, Bloomberg reported. The latest decline followed the Federal Reserve’s 0.75% interest rate hike earlier in the week — a move some observers took as a sign that the central bank is willing to tolerate a U.S. recession if it means finally reining in inflation. The U.K., Norway and South Africa also recently raised rates.
“The fears of a hard landing for the U.S. economy and across the global economy are working its way into the system,” John Kilduff, founding partner at Again Capital, told Bloomberg.
Meanwhile, a strengthening dollar continues to devalue other currencies, which further unsettles the global economy.
“The market is worried about growth and this is sending commodity prices down,” Ole Hansen, head of commodity strategy at Saxo Bank, said in an interview with The Wall Street Journal. “It’s a very bad cocktail of this and a stronger dollar.”
Gasoline prices, which closely align with the price of oil, have been in free-fall as well. The national average for a gallon of gas in the U.S. was $3.689 as of Sept. 23, 2022, according to AAA. That’s down from $3.692 a week ago and $3.892 a month ago, and well below the all-time high of $5.016 set on June 14.
As Bloomberg noted, crude oil is now on track for its first quarterly loss in more than two years, pushed lower by the surging dollar. A continued decline in crude prices might push the Organization of Petroleum Exporting Countries (OPEC) to reduce its production, experts say. The market could be roiled further by the upcoming European Union ban on Russian oil — two developments that could push oil prices back up again.
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JPMorgan Chase & Co. forecasts that Brent crude will rebound to $101 a barrel for the final quarter of 2022, while Goldman Sachs Group projects a price of $125 a barrel.
“This is going to be a very, very volatile last quarter,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a Bloomberg television interview.
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