Oil falls as ‘wrecking ball’ dollar piles on commodity losses

Oil dropped again, with Brent sliding below $85 a barrel at one point, as the dollar’s surge and mounting recessionary concerns threatened global demand.

The global oil benchmark hit the lowest intraday level since January as a Bloomberg gauge of the US currency rallied to an all-time high. Most other commodity markets from copper to wheat were also lower as risk assets began the week softly. Crude fell almost 6 per cent last week for a fourth straight weekly drop, the longest losing run this year.

Crude is on track for a substantial quarterly slump as leading central banks including the Federal Reserve raise interest rates aggressively to fight inflation, hurting the outlook for energy demand and sapping investors’ appetite for risk. The Fed’s tightening has helped to drive the US dollar to a record, making commodities priced in the currency more expensive for overseas buyers.

“The market is highly concerned that central banks will drive economies into recession,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. That puts heightened focus on the next OPEC+ meeting on October 5, he added.

Prices

  • Brent for November settlement traded 0.7 per cent lower at $85.53 a barrel at 9:51 a.m. in London.
  • Earlier, prices hit a low of $84.51 a barrel.
  • WTI for November delivery was 0.6 per cent lower at $78.26 a barrel on the New York Mercantile Exchange.

The slump in prices may induce the Organization of Petroleum Exporting Countries and its allies to consider intervening to stem the slide, either verbally or by announcing a reduction in output. Earlier this month, OPEC+ announced a token supply cut, and said members would monitor the market. 

The upward pressure on the dollar “is a wrecking ball for commodities,” Gary Ross, the chief executive officer of Black Gold Investors LLC, told a conference in Singapore, flagging scope for OPEC cuts. “The supply-demand balance has caught up and, as we’re entering the fourth quarter, we’re building stocks.”

Crude traders were also keeping tabs on the path of Tropical Storm Ian, which is expected to strengthen into a hurricane this week as it approaches the Florida mainland. At present, forecasters are struggling to pinpoint where it will make landfall, possibly anywhere from the Panhandle to Tampa Bay.

© 2022 Bloomberg L.P.

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