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The surge in the US-Dollar index has created unrelenting pressure on the price of crude and commodities.
On Monday, September 26, the price of Brent crude tanked to $85 per barrel amid growing recession fears and the surging US Dollar.
Earlier today, the Brent futures for November settlement tanked to $84.53 before recovering back marginally. Similarly, the West Texas Intermediate futures were trading at $80. Last Friday, both Brent and WTI futures fell by 5% to their lowest since January 2022.
The central banks across the world have moved ahead with hiking the interest rates aggressively to tame the soaring inflation. Also, the broader market sentiment continues to deteriorate. Ole Hansen, Head of Commodity Strategy at Saxo said:
“The unrelenting pressure on commodities, including crude oil, continues following Friday’s gloomy session which saw accelerated dollar strength and growth pessimism cause a ripple through markets. WTI trades below $80 per barrel while a return to the mid-80′s in Brent may soon see OPEC+ action to support prices”.
Russia has warned that it won’t supply commodities to nations supporting the price cap on crude prices. The country is currently facing sanctions after its invasion of Ukraine earlier this year in February. Since then, it has been dictating the fuel and gas flow in Europe, which is Russia’s major market.
The fears of a recession in the US markets are growing. Steve Hanke, professor of applied economics at Johns Hopkins University, said that the chance of the U.S. entering a recession is nearly 80%.
Speaking to CNBC last Friday, Hanke said:
“If [the Fed] continue[s] the quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it’ll be severe”.
When Will Crude Price Stabilize?
As Russia reinforces its troops to fight against Ukraine, the biggest question remains when shall crude find a support? Commonwealth Bank analyst Vivek Dhar said:
“This is really the big question mark for oil in forecasting the next few quarters – how do weaker demand projections weigh up against EU sanctions. It’s still going to be challenging for the market to find that oil to replace Russian supply”.
As the crude price continues to plunge, analysts are keen to observe the actions of OPEC, the Organization of the Petroleum Exporting Countries. The strong sell-off in the crude market could see OPEC intervening again.
It will be interesting to see how the macro conditions pan out in the coming months.