On Tuesday, oil prices rose after falling to a nine-month low, while the US dollar surge slowed down despite continuing demand worries about a probable global recession and a tighter monetary policy outlook.
On Monday, because of concerns about the global recession and the increasing currency, prices reached their lowest point since January.
At 2.52pm UAE time, Brent, the price reference for two-thirds of the world’s oil, was up 1.96 percent at $85.71 per barrel. The gauge used to track US crude, West Texas Intermediate, was up 1.75 percent at $78.04 per barrel.
Even if oil prices rose on Tuesday, investors are still worried about how tightening monetary policy and a probable recession could affect global demand.
Following the sell-off over the past several sessions, oil prices are now rising, according to Craig Erlam, senior market analyst at Oanda. “Traders have understandably become more negative on the price of oil given the possibility of a greater economic downturn, possibly even a worldwide recession, as demand would naturally decline in those conditions relative to initial estimates.”
According to UBS strategists Wayne Gordon and Giovanni Staunovo, the downward trend appears likely to continue.
“Oil prices have not been this low since January. Due to a generalized risk-off attitude, the strength of the US dollar, and general insecurity, prices may stay low in the foreseeable future, they warned.
As major central banks, like the US Federal Reserve, aggressively raise interest rates to combat inflation, crude is headed for a quarterly collapse.
The Federal Reserve increased its benchmark interest rate by 75 basis points on last Wednesday, marking the third straight hike of this size. It also suggested more hikes to control the inflationary surge. On Thursday, the Bank of England announced a 0.5 percentage point increase in its base interest rate, bringing it to 2.25 percent, while pledging to “act decisively, as necessary” to the inflationary crisis.
Oil prices are also being impacted by the strengthening of the US dollar since purchasers with weaker currencies must pay more for petroleum, which is priced in US dollars.
The ability of consuming countries whose currencies are not pegged to the dollar to benefit from reduced oil prices is constrained by the strength of the US dollar, according to the UBS analysts.
Only a production reduction by Opec+, they claimed, could reverse the downward trend in the near future.
The super club of oil producers may think about intervening to stop the decline when they meet on October 5 in response to the recent price decline.
Analysts, however, think that such a move is unlikely.
Opec+ is probably waiting until its planned meeting the following week before announcing any additional output cuts, which will almost certainly be downward, according to Emirates NBD.
In order to support prices, the alliance decided earlier this month to reduce its October output by 100,000 barrels per day, returning to August production levels.
Analysts warn that even a little supply reduction may not have any impact.
Any practical decrease would probably be less than the agreed-upon amount because many Opec+ countries produce below their quota, according to UBS analysts.
Demand is vulnerable going forward as monetary policy is expected to get tighter.
If economic troubles persist and speculators want to gauge the alliance’s fortitude in the face of serious global economic danger, oil prices may experience further pressure, according to Mr. Erlam.