Crude oil futures joined the broader market meltdown to finish the trading week, plunging to their lowest levels since January. Like the global equities arena, oil prices are cratering on growing worldwide recession fears. But are crude prices oversold?
October West Texas Intermediate (WTI) crude futures plummeted $4.61, or 5.52%, to $78.88 a barrel at 19:29 GMT on Friday on the New York Mercantile Exchange. US crude prices posted a 7.7% weekly loss, bringing their year-to-date decline to below 5%.
Brent, the international benchmark for oil prices, erased their losses. November Brent crude futures added $0.14, or 0.16%, to $85.17 a barrel on London’s ICE Futures exchange. Brent prices suffered a weekly loss of 6.2%, but they are still up nearly 10% on the year.
Crude prices traded like the rest of the financial markets as investors worry about central banks triggering a recession to quash inflation. In addition, geopolitical tensions have weighed on stocks, especially after Russian President Vladimir Putin warned of nuclear war.
The other chief factor has been a skyrocketing greenback. The US Dollar Index (DXY), a gauge of the greenback against a basket of currencies, spiked about 1.4% to above 112.00 to end the trading week. A stronger buck is bad for commodities priced in dollars because it makes it more expensive for foreign investors to purchase.
“Economic turmoil is putting oil on track for its first quarterly loss in two years as the market focuses on the potential coming recession inspired by aggressive [Fed] Reserve policy, and is not focused currently on the undersupplied supply squeeze that is facing the world this winter,” wrote Phil Flynn, senior market analyst at The Price Futures Group, in a Friday note.
In addition, the Baker Hughes Oil Rig Count rose to 602 for the week ending September 23, up from 599 in the previous week.
But two trends could reverse oil’s downward trend next week. The first is the Tropical Depression Nine heading into the Gulf of Mexico. The second is the growing likelihood that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, could cut production to support prices.
In other energy commodities, October natural gas futures tumbled $0.22, or 3.1%, to $6.869 per million British thermal units (Btu). October gasoline futures crashed $0.2022, or 8.04%, to $2.3135 a gallon. October heating oil futures shed $0.1572, or 4.73%, to $3.1635 per gallon.