NEW YORK: Oil prices plummeted on Friday as global recession fears and weak oil demand, especially in China, outweighed support from a large cut to the supply target of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.
Brent crude futures were down $2.52, or 2.7 percent, at $92.05 a barrel at 11:12 a.m. EDT, while US West Texas Intermediate crude futures fell $2.97, or 3.3 percent, to $86.14.
The Brent and WTI contracts both oscillated between positive and negative territory for much of Friday but were down for the week by 6 percent and 7 percent, respectively.
US core inflation recorded its biggest annual increase in 40 years, reinforcing views that interest rates would stay higher for longer with the risk of a global recession. The next US interest rate decision is due on Nov. 1-2.
US consumer sentiment continued to improve steadily in October, but households’ inflation expectations deteriorated a bit, a survey released on Friday showed.
The improvement in consumer sentiment “is being viewed as a negative because it means the Fed needs to break the spirit of the consumers and slow the economy down more and that’s caused an increase in the dollar and downward pressure on the oil market,” said Phil Flynn, analyst at Price Futures Group in Chicago.
The US dollar index rose 0.7 percent on Friday. A stronger dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies.
China, the world’s largest crude oil importer, has been fighting COVID flare-ups after a week-long holiday. The country’s infection tally is small by global standards, but it adheres to a zero-COVID-19 policy that is weighing heavily on economic activity and thus oil demand.
The International Energy Agency on Thursday cut its oil demand forecast for this and next year, warning of a potential global recession.
The market is still digesting a decision last week from OPEC+ when they announced a 2 million barrel per day cut to oil production targets.
Underproduction among the group means this will probably translate to a 1 million bpd cut, the IEA estimates.
Saudi Arabia and the United States, meanwhile, have clashed over the decision.