Oil reversed course as the dollar shed some of its strength and risk-on sentiment lifted equity markets.
The global oil benchmark rose 1 per cent to trade near $87 a barrel on Monday. Earlier, Brent slipped below $85 a barrel and West Texas Intermediate fell below $80 as the dollar hit an all-time high, which makes commodities priced in the currency less attractive. Meanwhile, the EU continues to struggle with reaching an agreement on Russian oil price caps and will likely push back the deal until a broader sanctions package has been agreed on.
“The market remains in a pretty nervous trade,” said Dennis Kissler, senior vice president at Bok Financial Securities. “Markets are rallying back a little bit this morning, mainly because we’re seeing the US dollar also set back a bit.”
Oil is on track for a substantial quarterly slump as leading central banks including the Federal Reserve raise interest rates aggressively to fight inflation, hurting the outlook for energy demand and sapping investors’ appetite for risk.
The Fed’s tightening has helped to drive the US dollar to a record, making commodities priced in the currency more expensive for overseas buyers.
“The market is highly concerned that central banks will drive economies into recession,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. That puts heightened focus on the next OPEC+ meeting on October 5, he added.
The slump in prices may induce the Organisation of Petroleum Exporting Countries and its allies to consider intervening to stem the slide, either verbally or by announcing a reduction in output. Earlier this month, OPEC+ announced a token supply cut and said members would monitor the market.