Oil prices fell on Wednesday as a renewed fear of a recession, and a strong US dollar weighed on the commodity.
Brent oil, the international oil benchmark, fell to $88.50 a barrel, down 4.6 percent on the day and a seven-month low dating back to before the Russian invasion of Ukraine. It marked the first time since February that Brent had fallen below $90 a barrel.
West Texas Intermediate, the US marker, fell a whopping 5.2 percent to $82.37 a barrel, its lowest level since January.
Wednesday’s fresh declines come just days after Opec+’s decision on Monday to cut its supply of crude to keep prices stable.
The producer group will take 100,000 barrels per day from the supply from October. Although it was only a fraction of the 100 million b/d oil market, it returned an increase of the same amount as last month after a visit to Jeddah by US President Joe Biden.
The decision came after oil prices fell in recent weeks amid growing fears of a recession in Europe and weaker demand for oil from China due to the Covid-19 lockdowns.
The message from Opec+ was that it will protect the price of oil, which rose sharply on Monday. However, a drop in potential demand due to the recession continues to weigh on traders.
“The specter of a demand-sapping recession in the Western world is getting closer as rising inflation and rising interest rates affect consumption,” said Stephen Brennock of PVM, a brokerage firm. “Simply put, the [Opec+] cut is being diverted by market players as a clear sign of the deteriorating demand outlook,” he added.
The strength of the US dollar, commonly seen as a headwind for commodity prices, is also weighing on oil. The dollar index, which tracks the greenback against a basket of currencies, has reached a two-decade high.
“All rallies are still being sold. The OPEC cut was ignored,” Oilytics analysts said. The strong greenback “remains the main headwind for most commodities,” she added.
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The price drop is being applauded by the Biden administration ahead of the November midterm elections. Despite pledges to move the US economy away from fossil fuels, Biden has pushed domestic suppliers to increase production while releasing record amounts of crude oil from the country’s strategic stockpile in an effort to curb rising prices at the pump.
The national average US gasoline price has fallen sharply to $3.76 a gallon in recent weeks, after surpassing $5 a gallon in June.