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World | Aug 22, 2022

Oil prices sink 4% on concerns economic slowdown may dent fuel demand

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Oil pours out of a spout from Edwin Drake’s original 1859 well that launched the modern petroleum industry at the Drake Well Museum and Park in Titusville, Pennsylvania U.S., October 5, 2017. (Photo: REUTERS/Brendan McDermid/File)

LONDON (Reuters)

Oil prices fell on Monday in volatile trading, ending three days of gains, on fears aggressive US interest rate hikes may lead to a global economic slowdown and dent fuel demand.

Brent crude futures for October settlement fell $3.99, or 4.1 per cent, to US$92.73 a barrel by 1411 GMT.

West Texas Intermediate (WTI) crude for September delivery – due to expire on Monday – was down $3.77, or 4.1 per cent, at US$87. The more active October contract was down $3.73 cents, or 4.1 per cent, at $86.71.

“Choppy trade continues. There remain many factors influencing the oil price right now from a tight market to a diminishing growth outlook and a potential Iran nuclear deal,” said Craig Erlam, senior market analyst at OANDA.

“We could see WTI remain choppy around $90 and Brent hover above $92 for a little while longer yet.”

Pressuring prices were worries over slowing fuel demand in China, the world’s largest oil importer, partly because of a power crunch in the southwest.

Beijing cut its benchmark lending rate on Monday as part of measures to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.

Also pushing down prices, the dollar index rose to a five-week high on Monday. A stronger US currency is generally bearish for the market because much of the world’s oil trade is conducted in dollars.

Investors will be paying close attention to comments by Fed Chair Jerome Powell when he addresses an annual global central banking conference in Jackson Hole, Wyoming, on Friday.

Meanwhile, the leaders of the United States, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal, the White House said on Sunday, which could allow sanctioned Iranian oil to return to global markets.

A section of the BP Eastern Trough Area Project (ETAP) oil platform is seen in the North Sea, around 100 miles east of Aberdeen in Scotland February 24, 2014. (Photo: REUTERS/Andy Buchanan/File)

High natural gas prices exacerbated by reduced supply from Russia is strengthening oil demand, said Ole Hansen, head of commodity strategy at Saxo Bank.

“While funds continued to sell crude oil in anticipation of an economic slowdown, the refined product market was sending another signal with refinery margins on the rise again, partly due to surging gas prices making refined alternatives, such as diesel, look cheap,” Hansen said.

Supply worldwide remains relatively tight, with the operator of a pipeline supplying about one per cent of global oil via Russia saying it will reduce output again because of damaged equipment.

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