Oil Prices Drop as Dollar Strengthens and Recession Fears Loom

Oil prices fell in volatile trading on Monday, as a stronger dollar and fears of recession risks offset gains arising from Russia’s plans to deepen oil supply cuts.

West Texas Intermediate U.S. crude oil traded at $75.98 a barrel, 34 cents, or 0.5% lower, while Brent crude oil, against which Nigerian oil, was down 48 cents, or 0.6%, at $82.68 a barrel in the early hours of Monday.

The dollar hovered near a seven-week peak on Monday after a slew of strong U.S. economic data reinforced the view that the Federal Reserve will have to raise interest rates further and for longer. A firm dollar makes commodities priced in the U.S. currency more expensive for holders of other currencies.

“Crude continues to take direction from the sentiment in the broader financial markets,” said Vandana Hari, founder of oil market analysis provider Vanda Insights. Fears of a hawkish Fed returned to the fore on Friday after the personal consumption expenditures (PCE) price index, shot up 0.6% last month after gaining 0.2% in December.

“If risk-aversion continues to grow, crude will likely come under renewed pressure,” said Hari. Adding to the downside pressure, U.S. crude oil inventories surged to the highest level since May 2021 last week, data from the Energy Information Administration (EIA) showed.

The global economic slowdown, exacerbated by the COVID-19 pandemic, has also dampened demand for oil, leading to a fall in prices. Russia’s plans to deepen oil supply cuts have provided some relief, but the market remains volatile.

Investors are bracing for China’s manufacturing surveys this week for a clear direction on oil demand. China is holding its annual parliamentary meeting from this weekend and will see new economic policy targets and policies. “We expect the government to reiterate the priority of supporting growth and call for more policy support,” Ning Zhang, senior China economist at UBS Investment Bank, said in a note.

The outlook for oil prices remains uncertain, with geopolitical tensions, supply cuts, and economic factors all contributing to price volatility. As the world transitions to cleaner forms of energy, the oil industry will continue to face challenges, and companies must adapt to survive in an ever-changing market.