Oil is falling as recession fears offset the prospects of supply shortage

NEW YORK (Reuters) – Oil prices fell about 1 percent on Monday, as investors weighed down the clouds of an economic storm that could herald a global recession and erode demand for fuel against a possible supply shortage.

Brent crude futures were down 96 cents, or 1%, at $96.96 a barrel by 11:31 AM ET (1531 GMT). West Texas Intermediate crude was down 71 cents, or 0.8%, at $91.93 a barrel.

Charles Evans, president of the US Federal Reserve Bank of Chicago, said there is a strong consensus in the Fed to raise the policy rate target to around 4.5% by March and keep it there. Read more

Stubbornly higher rates, which are meant to give the US central bank time to assess the impact of inflation and allow clogged supply chains to remove limited oil prices.

“There is more agony and gloom from these people and what they are going to do to the economy, because they are not fully convinced that inflation is under control, and that is the whole game that affects oil,” said John Kilduff. , a partner at Again Capital LLC in New York.

Oil prices also suffered as the US dollar rose, which rose for the fourth session. A strong dollar makes crude oil more expensive for non-US buyers.

However, the possibility of tightening oil supplies limited the declines in prices.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, better known as OPEC+, decided last week to cut production target by two million barrels per day.

Brent and West Texas Intermediate posted their biggest weekly percentage gains since March after the cut was announced.

The OPEC+ cuts will squeeze supply in an already tight market. EU sanctions on Russian crude and oil products will take effect in December and February, respectively.

Concerns about demand remain relatively strong as the pandemic subsides, exacerbating scarce supplies as the European Union late last week backed a G7 plan to impose a price cap on Russian oil exports. Read more

Analysts have warned that the complex new sanctions package could end with a shutdown of large supplies of Russian crude.

“Expectations of economic stagnation will lead to lower demand for oil,” Fitch Ratings said on Monday. “However, we expect price volatility to remain high in the short term due to geopolitical factors, such as further sanctions leading to a decline in Russian exports.”

These political factors could alter supply patterns and cause greater price volatility, Fitch said.

Meanwhile, services activity in China during September contracted for the first time in four months as COVID-19 restrictions affected demand and business confidence, data showed on Saturday. Read more

The slowdown in China, the world’s second largest oil consumer after the United States, is adding to growing concerns about a possible global recession caused by many central banks raising interest rates to combat high inflation.

Additional reporting by Noah Browning, Florence Tan and Emily Chow. Editing by Mark Porter and Bernadette Baum

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