Oil tumbles to pre-war level on recession fears

Stocks were also hit by the negative outlook for the global economy but perked up as energy prices and bond yields fell, while currency markets were gripped by the prospect for interest rate hikes



Pumpjacks are seen operating in Bakersfield, California. — AP file photo
Pumpjacks are seen operating in Bakersfield, California. — AP file photo

By AFP

Published: Wed 7 Sep 2022, 8:58 PM

Oil prices tumbled back to pre-war levels Wednesday as recession fears returned to the forefront.

Stocks were also hit by the negative outlook for the global economy but perked up as energy prices and bond yields fell, while currency markets were gripped by the prospect for interest rate hikes.

Oil prices briefly climbed early on Wednesday as Russia’s President Vladimir Putin said his country would stop delivering oil and gas supplies to countries that introduce price caps.

G7 industrialised powers have vowed to move urgently towards implementing a price cap on Russian oil imports to cut off a major source of funding for Moscow’s military action in Ukraine.

But then oil prices then turned sharply lower, with Brent crude, the main international contract, passing under $90 per barrel for the first time since February.

Opec and its allies earlier this week cut production targets for the first time in more than a year in a bid to lift prices.

“While the 100,000 barrel cut wasn’t fundamentally significant, it was clearly intended as a warning not to drive the price lower or face further cuts,” said OANDA trading platform analyst Craig Erlam.

“Unfortunately, it seems traders are in no mood to be told what to do and growth fears are instead dictating the price direction.”

Recession concerns also dampened sentiment towards equities, but Briefing.com analyst Patrick O’Hare said those worries were competing for investors’ attention with “the idea that the stock market is oversold on a short-term basis and due for a bounce”.

Recession fears have been driven in large part by central banks moving aggressively to rein in surging inflation.

The dollar continues to gain strength from expectations of a third-straight blockbuster hike to US interest rates later this month.

US Federal Reserve officials have lined up in recent weeks to say their main focus is bringing inflation down from four-decade highs, even if that means tipping the economy into recession.

The different pace in lifting rates taken by central banks is fuelling swings in currency values.

The European Central Bank is Thursday forecast to deliver another bumper rate increase, mirroring aggressive moves by the Fed and Bank of England.

Nevertheless, it has moved slower and the euro remains lodged below parity with the dollar.

Meanwhile, the dollar rose to 144.99 yen — the Japanese currency’s weakest showing since 1998.

“The reason that we are seeing this much strength in the dollar against the yen is purely because of the difference in two central banks’ policies,” noted Naeem Aslam, chief market analyst at AvaTrade.

“The Fed is as hawkish as it can be, and the BoJ still doesn’t seem to be bothered much about inflation or changing its stance on monetary policy.”

Japan’s finance minister, Shunichi Suzuki, on Wednesday expressed concern about the yen’s drop.

“For now, we’re monitoring with a sense of urgency how it’s developing, but if this continues, it makes sense that we will take necessary measures,” he said, without detailing what the measures might be.

The greenback also struck a 37-year peak against sterling after a Bank of England official said plans by new PM Liz Truss to cap energy bills would reduce inflation pressures, leading markets to believe the central bank may let up on rate hikes. — AFP


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