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Oil: The 'R'-Word Rules as U.S. Crude Below $80 for Worst Week in 7

Published 09/23/2022, 11:09 AM
Updated 09/23/2022, 03:02 PM
© Reuters.

© Reuters.

By Barani Krishnan 

Investing.com - It's back, the buzzword most hated by oil longs.

Recession, or the 'R'-word as it has come to be known, was omnipotent across commodity markets on Friday, sending gold to 2½-year lows while setting up 'black gold', or oil, for its worst weekly loss in seven as U.S. crude broke below $80 per barrel the first time since January.

Global equities at a two-year low, the dollar at 20-year highs, weak European purchasing managers indexes, and growth concerns from this week's rate hikes by the Federal Reserve to the Bank of England made it a perfect storm for oil bulls.

"The market is clearly thinking economic slowdown," said Scott Shelton, energy futures broker at ICAP in Durham, North Carolina.

"Whether or not physical [oil] grades are strong or weak matters not currently," Shelton added.

Long-leaning analysts have warned that risk of war escalation in Ukraine by Russia and China's opening up from COVID lockdowns could mean plenty of upside for oil in the coming weeks.

New York-traded West Texas Intermediate, which serves as the U.S. crude benchmark, settled at $78.74 per barrel, down $4.75, or 5.7%, on the day. The so-called WTI earlier hit a session low of $78.14.

For the week, the U.S. crude benchmark was down 7.5% for its worst week since the end of July.

“WTI is inching closer to the 100-Week SMA of $77.50 with today's low of $78.14,” Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said, referring to U.S. crude’s  Simple Moving Average. “Some additional drop beyond the support is not ruled out.”

Brent, the London-traded global benchmark for oil, settled at $86.15, down $4.31, or 4.8% on the day, after an intraday drop to $85.51. 

For the week, Brent was down 5.7% for its biggest weekly decline since the end of August.

"Central banks now appear to accept that a recession is the price to pay for getting a grip on inflation, which could weigh on demand next year," said Craig Erlam, analyst at online trading platform OANDA.

"At the same time, the market still remains tight and OPEC+ is perfectly willing to restrict supply further even as it fails to deliver on quotas it has set itself so far. What's more, a nuclear deal between the US and Iran looks no closer and Russia's mobilization could pose a risk to its supply."

Considering all these, "very little is probably priced in at this point," Erlam added.

The European Union ratcheted up, on Thursday, its plans to put a cap on the price of Russian oil -- a measure aimed at weakening Moscow's ability to fund the war in Ukraine.

Nigeria's Oil Minister Timipre Marlin Sylva, speaking on behalf of producer alliance OPEC+, meanwhile, threatened a cut in global crude output if prices continued to fall.

Neither announcement made much of an impact on the market.

Latest comments

This is an era of E-revolution for E-commerce and Electric vehicles. Oil prices will fall.
And where are those who predicted oil prices at 120 and some even at 150? Where have these well-informed analysts gotten themselves?
The E-words are Electric vehicles and E-commerce.
It's E word to tank oil prices. This decade will be for new industrial revolution of EV era. To be the best decade for stock market.
Oops !! (Brent Price : wrong way) Try again ??
Hahaha! It's true! The price only goes down. Good thing the US producers didn't invest in more exploration and production. They would be so sorry now! it was better to keep the wallets snapped shut. The price is no longer high enough for investing in E&P and look at how quickly it crashed from April! Whew! That was fast!
recession, another word for manipulation
Haven't you heard? There are no more oil longs. Oil is in the dumpster. The only things rising to great heights are coal, the USD, and lithium. Meet the new boss. Not like the old boss at all.
2023 free oil for everyone, oops but there none left.
WTI approaches 200 Week SMA $77.50
Biden got what he wanted. Dems will will midterms. Expect oil to surge after November
Time for OPEC+ to cut production
Yes .. biden faught opec ..
Oil back to $90 , decline without reason . Only with stop loss trimmign , with the same way uptrend rally
John. 200 week SMA $77.50 is in close vicinity and by Monday this level will coincide with $78.50 If some short term recovery towards $86 and $90 happens by next week, it is going to require further consolidation to establish a reversal. On the other hand, $72 is not ruled out.
strategic reserves being dumped into the market and ressesion fear have tanked oil. it's temporary though. load up if you got the funds available. this is a easy double your money opportunity.
Mark. Recessionary fears do dent the sentiments however the prevailing demand doesn't die down at once. Raging Dollar is causing unprecedented imbalances among rival currencies and playing havoc on metals and energy. This crash may find support somewhere around.
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