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Oil down on strong dollar, recession worries and hawkish Fed talk

Published Oct 11, 2022 09:07PM ET Updated Oct 12, 2022 03:56PM ET
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© Reuters. FILE PHOTO: An aerial view shows oil tanks of Transneft oil pipeline operator at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. Picture taken with a drone. REUTERS/Tatiana Meel
 
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By David Gaffen

NEW YORK (Reuters) -Oil futures fell for a third day in a row on Wednesday, fueled by ongoing concerns about demand, the dollar's strength and expectations for more interest rate hikes by major central banks.

Both OPEC and the U.S. Energy Department slashed their demand outlooks. Last week, together with allies including Russia, OPEC sent prices rising when it agreed to cut supply by 2 million barrels per day (bpd).

Brent crude futures settled down $1.84, or 2%, to $92.45. U.S. West Texas Intermediate crude ended down $2.08, a 2.3% drop, to $87.27 a barrel.

OPEC on Wednesday cut its outlook for demand growth this year by between 460,000 bpd and 2.64 million bpd, citing the resurgence of China's COVID-19 containment measures and high inflation.

"The world economy has entered into a time of heightened uncertainty and rising challenges," OPEC said in its monthly report.

The U.S. Energy Department lowered its expectations for both production and demand in the United States and globally. It now sees just a 0.9% increase in U.S. consumption in 2023, down from a previous forecast for a rise of 1.7%. Worldwide, the department sees consumption rising just 1.5%, down from a previous forecast for 2% growth.

"We're not trading a slowdown in the economy - it's fear of a slowdown in the future," said Phil Flynn, analyst at Price Futures Group in Chicago.

The energy market is under pressure as well from the dollar, which rallied against low-yielding currencies like the yen. The Federal Reserve's commitment to keep raising interest rates to stem high inflation has boosted yields, making the U.S. currency more attractive to foreign investors.

Minneapolis Fed President Neel Kashkari said on Wednesday the central bank will stick to its current course as "we have not yet seen much evidence that underlying inflation ... is yet softening."

U.S. producer-level inflation fanned worries on Wednesday as wholesale prices rose more than anticipated. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.

OPEC's decision angered the United States, with President Joe Biden vowing unspecified "consequences" for relations with Saudi Arabia after the move due to current tightness in supply worldwide.

Russia's state-owned pipeline monopoly Transneft on Wednesday said it had received notice from Polish operator PERN about a leak on the Druzhba oil pipeline, Interfax reported.

The International Monetary Fund on Tuesday cut its global growth forecast for 2023 and warned of increasing risk of a global recession.

Oil down on strong dollar, recession worries and hawkish Fed talk
 

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Comments (6)
EL LA
EL LA Oct 12, 2022 11:06AM ET
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Sounds like OPEC+ has the correct read on the slowing economy and they will probably have to cut production again since the price of oil keeps falling.
Oct 12, 2022 9:14AM ET
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The biggest threat is interest. Governments are intentionally trying to make people poor to achieve a goal. Good luck with that.
Oct 12, 2022 9:14AM ET
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The biggest threat is interest. Governments are intentionally trying to make people poor to achieve a goal. Good luck with that.
Oct 12, 2022 7:48AM ET
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Good lead article in WSJ on Biden botch job
Vitalie Mihaela
Vitalie Mihaela Oct 12, 2022 4:26AM ET
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gangerajan
Ken Roth
Ken Roth Oct 12, 2022 1:35AM ET
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Salman and putin strategy not working prive did not go to 100 but are now declining and the saudis are on their own without US protection and will no longer be able to buy american weapons. Maybe they can ask putin to by some missiles with a 30% chance to hit their targets.
 
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