Tuesday, February 7, 2023

Oil drops by over $2 per barrel, dogged by recession fears

Oil drops by over $2 per barrel, dogged by recession fears

NEW YORK (Reuters) - Oil fell by more than $2 per barrel, swept up in a wider rout in global equities on fears of a looming recession, after central banks across Europe and North America signalled they will continue to battle inflation aggressively.

Brent crude futures settled at $79.04 per barrel, down $2.17 or 2.4%, while West Texas Intermediate futures fell by $1.82, or 2.4%, to settle at $74.29 per barrel.

The US Federal Reserve indicated it will raise interest rates further next year, even as the economy slips toward a possible recession. On Thursday, the Bank of England and the European Central Bank also raised interest rates to fight inflation.

"The talk around the campfire has suddenly become all about demand destruction in the face of a recession," said Robert Yawger, director of energy futures at Mizuho.

"The economic situation is less than stellar. Not today, but we are drifting in the direction of testing $70-per-barrel WTI again, and things could get very ugly from there."

Both benchmarks finished the week higher, aided by rallies in the first three days. Brent futures notched their biggest weekly gains since early October but those gains follow the worst weekly rout since August for the oil benchmark.

Heavy crude benchmarks have strengthened as the Canada-to-US Keystone pipeline shutdown continues without a timetable for restart. While the outage is supportive for prices of heavier crude oil grades, it is "doing nothing" for lighter global benchmarks, said Matt Smith, lead oil analyst at Kpler.

Oil prices briefly erased some losses after officials said the US Energy Department will repurchase 3 million barrels of domestic crude oil for the Strategic Petroleum Reserve, the first purchase since this year's record 180 million-barrel release from the stockpile.

"It's not clear if this SPR repurchase is a one-off test or the start of a trend. If a one-off, it is a bit of a non-event," Smith said.