Crude Oil Extends Decline as Uncertainty Surrounding Recession Outweighs Tight Supply

Crude oil prices dipped by 2% on Monday following five sessions of consecutive gains as energy investors were concerned that the economic recession could erode demand for the commodity despite OPEC cuts.

Brent crude oil, against which Nigerian oil is priced, was down by $1.73 or 1.8% to $96.19 a barrel at about 9:14 pm Nigerian time. West Texas Intermediate crude stood at $91.13 a barrel, down by $1.51, or 1.6%. Both had risen the previous week largely on expectations of tightening global supply.

Oil prices fell amid comments from U.S. Federal Reserve officials about rising interest rates and their effect on the economy.

Fed Vice Chair Lael Brainard said the economy is starting to feel more restrictive monetary policy, but the full brunt of the central bank’s interest rate hikes will not be apparent for months.

Brainard’s comments followed remarks by Chicago Fed President Charles Evans that there was a strong consensus at the Fed to raise the target policy rate to around 4.5% by March and hold it there.

“There’s more of the doom and gloom from those folks and what they’re going to do to the economy, because they’re not so convinced they have inflation under control, and that’s the macro play that’s weighing on oil,” said John Kilduff, partner at Again Capital LLC in New York.

Oil prices also struggled under a strengthening U.S. dollar, which rose for a fourth session. A stronger dollar makes crude more expensive for non-American buyers.

The prospect of tightening OPEC+ oil supplies limited declines in prices. The Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, decided last week to lower their output target by 2 million barrels per day.

“OPEC+’s decision… will have a muted impact on the oil supply market as actual output cuts will be smaller,” Fitch Ratings said, noting that collectively the group was already producing less than its previous quotas.