Crude oil prices tumble amid recession fears and covid curbs in China

12 Oct 2022 , 07:31 AM

On Wednesday, oil prices fell for a third straight day as investors worried about the potential impact on fuel demand from rising recessionary threats and increasing COVID-19 restrictions in China.

To reach $93.78 a barrel, Brent crude futures lost 51 cents or 0.5%. American West Texas Intermediate crude was down 69 cents or 0.8% at $88.66 per barrel.

In the previous session, both benchmarks decreased by 2%.

The International Monetary Fund on Tuesday lowered its projection for global growth in 2023 and issued a warning about the growing possibility of a world recession.

But despite investors’ concerns that policymakers would precipitate a severe economic slump by raising borrowing costs too quickly and too significantly, the IMF still urged central banks to continue their fight against inflation.

Separately, Loretta Mester, president of the Fed Bank of Cleveland, stated that the U.S. Federal Reserve will need to continue tightening monetary policy because it has not yet been able to control inflation.

After a senior Bank of England official instructed pension fund managers to complete the rebalancing of their positions by Friday, when the British central bank is scheduled to end its bond-buying program, the dollar saw significant gains overnight.

Oil and other risky assets typically suffer when the dollar is stronger because it makes commodities denominated in dollars more expensive for owners of other currencies.

The tighter COVID-19 limitations in China, the world’s second-largest oil consumer, are also exerting pressure on the oil market.

Stricter regulations and increased COVID-19 testing have been implemented in major Chinese cities including Shanghai and Shenzhen after infections reached their highest level in August.

According to a preliminary Reuters poll released on Tuesday, U.S. crude oil stocks are expected to have increased by 1.8 million barrels in the week to October 7 after falling for the previous two weeks.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, which includes Russia, decided last week to reduce their daily output target by 2 million barrels.

After the OPEC+ statement, the market has now “essentially shrugged off” the news.

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