Oil Price Fundamental Daily Forecast – Crushed by Strong Dollar, Recession Concerns

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower late in the session on Friday. The more than 5% loss has driven the markets into their lowest levels in eight months as fears that rising interest rates will tip the global economy into a recession outweighed supply concerns fueled by geopolitical risks.

Additionally, the stronger U.S. Dollar also weighed on demand for the dollar-denominated assets as the greenback touched its highest level in more than 20 years.

At 16:30 GMT, November WTI crude oil futures are trading $79.06, down $4.43 or -5.31% and the December Brent crude oil futures contract is at $85.39, down $4.14 or -4.62%. The United States Oil Fund ETF (USO) is trading $65.32, down $3.65 or -5.29%.

WTI and Brent are also down 8% and 6% for the week, respectively, putting them both in a position to post their fourth straight weekly loss. Technicians also noted that WTI is poised to close at its lowest settlement since January 5 and Brent at its lowest level since January 13.

Products are also losing ground with U.S. gasoline and diesel futures off by more than 5%.

Rate Hike Fever Fueling Recession Risks

The U.S. Federal Reserve raised its benchmark interest rate by a super-sized 75 basis points on Wednesday. Joining the Fed in lifting rates was a group of central banks from around the world including the Swiss National Bank and the Bank of England.

The slew of interest rate hikes this week and the promise of more to follow is raising the threat of a global recession and that means lower demand, and an ultimate drop in prices.

While widespread monetary tightening is being blamed as the primarily factor driving down prices, the U.S. Dollar shares some of the blame. The greenback is on track to finish at its highest level against a basket of major currencies since May 2002. Crude oil is being pressured because a strong dollar reduces demand for dollar-denominated oil by making it more expensive for foreign buyers.

Euro Zone Recession Looms

The Euro Zone’s downturn in business activity deepened in September, a survey showed, suggesting a recession looms as consumers rein in spending and as governments urge energy conservation following Russia’s moves to cut off European supply.

Manufacturers were particularly hard hit by high energy costs after Russia’s invasion of Ukraine sent gas prices rocketing, while the bloc’s dominant services industry suffered as consumers stayed at home to save money.

“The third decline in a row for the Euro Zone PMI indicates business activity has been contracting throughout the quarter. This confirms our views a recession could have already started,” said Bert Colijn at ING.