Pressured by a strong dollar and weaker demand forecasts, oil prices continued their way down on Monday morning after closing last week on a bearish note.
WTI crude fell below $85 on Friday afternoon on a flurry of negative news. Rising U.S. commercial crude inventories, a year-on-year drop in supplied oil products and a gloomy IEA demand outlook weighed on oil futures.
For the fourth quarter of 2022, the IEA predicts zero demand growth as a result of China’s zero-covid policies, stating that the market will likely be oversupplied in the second half of 2022, before balancing out in early 2023 as the EU ban on Russian seaborne crude imports kicks in.
WTI crude fell to $82.25 per barrel on Monday morning before recovering to $84 at 10:40 AM ET on the news that the U.S. Federal Reserve is considering a large 1 percentage point rate hike.
The series of interest rate hikes have provided support for the U.S. dollar, which continues to trade near a two-decade high. The strong U.S. dollar has been a major bearish factor for crude prices, and the prospect of further rate hikes has had a resounding negative impact on prices as traders continue to close out long positions.
And it's not just the U.S. Federal Reserve hiking interest rates. According to Bloomberg data, 90 central banks have raised interest rates this year, and many of them have opted to raise interest rates by 75 basis points at once.
Perhaps the only positive news this morning for oil came from China, where authorities lifted the lockdown in the 21 million megalopolis Chengdu, allowing people to leave their homes and resume commercial activities. While the relatively short lockdown in Chengdu hasn’t had a major impact on crude prices, the overall zero-covid policy in China continues to be a long term threat to commodity markets. Investment bank Goldman Sachs predicts that China’s covid policy is unlikely to change, even after the Communist party meeting in October.
By Tom Kool for Oilprice.com
More Top Reads from Oilprice.com:
- U.S. Natural Gas Prices Plummet On Rail Deal, Storage Build
- Angry Customers Demand Explanation As German Energy Bills Soar
- Saudi Arabia And Russia Both Want $100 Oil