By Peter Nurse
Investing.com -- Oil prices slumped Friday, falling to the lowest levels this year, weighed by heightened recession fears, which would curb global demand, as well as a surging dollar.
The two benchmarks were down 5.1% and 3.7% respectively over the course of this week, heading for their fourth consecutive weekly loss.
The market has been hit hard by aggressive monetary tightening by a number of central banks, led by the U.S. Federal Reserve , as they tried to control inflation running at historic highs.
The Fed policymakers made it clear they were prepared to tolerate a U.S. recession in order to curb soaring prices, and this view seems to be the prevailing one at the likes of the European Central Bank and the Bank of England .
Adding to the difficulties the crude market is facing is the strength of the U.S. currency, with the dollar index reaching its highest level in two decades, as this makes the commodity more expensive for foreign buyers.
“With expectations of only further monetary tightening in the months ahead, commodity markets are likely to face some strong headwinds,” analysts at ING said, in a note. “The dominance of the USD at the moment will only add to these headwinds.”
These factors have overshadowed the concerns that Russia’s escalation of the war in Ukraine, by announcing the biggest mobilization of forces since World War Two, will further limit supply from this major supplier of crude.
EU member states are expected to meet over the weekend to discuss pushing ahead with a price cap on Russian oil, in an attempt to come to a preliminary agreement by early October, ahead of an EU leaders’ meeting.
“Getting all members to agree on a price cap could prove difficult, just like we saw with the EU ban on Russian oil, which was watered down to include only seaborne trade,” ING added. “EU members will want to come to a final decision by 5 December, which is when the ban on Russian seaborne crude into the EU comes into force.”
Additionally, the threat that OPEC and its allies may cut production when they next meet in early October, after making a symbolic cut in its oil output target of 100,000 barrels per day last time, is having little impact.
The bloc is already producing more than 3.5 million barrels a day less than its official output quotas.
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