Myra P. Saefong and Williams Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 09 23 2022

Oil prices dropped sharply Friday, with U.S. crude below $80 a barrel to mark the lowest finish since January, as recession fears gripped financial markets, sinking equities and government bonds, while contributing to a further rise by the U.S. dollar.

Price action

• West Texas Intermediate crude for November delivery CL.1, +0.88% CL00, +0.88% CLX22, +0.88% fell $4.75, or 5.7%, to settle at $78.74 a barrel on the New York Mercantile Exchange, with prices for the front-month contract down 7.1% for the week, posting the lowest settlement since Jan. 10, according to Dow Jones Market Data.
  
  
• November Brent crude BRNX22, +0.58%, the global benchmark, dropped $4.31, or 4.8%, at $86.15 a barrel on ICE Futures Europe, also ending at its lowest since January, down 5.7% for the week. The most actively traded December contract BRN00, +0.60% BRNZ22, +0.60%, declined $4.50, or 5%, to $85.03 a barrel.
  
  
• Back on Nymex, October gasoline RBV22, +0.87% fell 5.3% to $2.383 a gallon, losing nearly 1.4% for the week.
  
  
• October heating oil HOV22, +0.35% shed 5.1% to $3.2371 a gallon. for a weekly decline of 2%.
  
• October natural gas NGV22, +0.19% lost 3.7% to $6.828 per million British thermal units, with prices down about 12% for the week.

Market drivers

Global equities fell sharply Friday, with benchmark stock indexes also logging steep losses on Wall Street.

Oil fell “in sympathy with the broader financial markets, as traders grapple with fears of a massive recession,” Manish Raj, chief financial Officer at Velandera Energy Partners, told MarketWatch. “Geopolitical tensions in monstrous proportions, inflation at a multi-decade high and the dollar surging unabated are all certain to cause demand destruction for oil.”

“Geopolitical tensions in monstrous proportions, inflation at a multi-decade high and the dollar surging unabated are all certain to cause demand destruction for oil.”— Manish Raj, Velandera Energy Partners

The Federal Reserve earlier this week delivered another outsize interest rate hike and signaled it would drive rates higher than market participants had previously anticipated.

The Fed’s position that it will “prioritize taming inflation even at the cost of a recession did not exude any confidence in an already shaky market,” said Raj. “To make matters worse, oil supply remains unabated, particularly with Russian oil being gobbled up without constraints.”

Read: Why Europe’s efforts to cap Russian oil prices and ban imports are doomed to fail

A number of other global central banks also delivered rate increases this week, underlining investor worries about the economic outlook.

“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,” Phil Flynn, senior market analyst at The Price Futures Group, in a Friday report.

The market, however, remains tight, said Craig Erlam, senior market analyst at OANDA, and the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have signaled they’re willing to restrict supply further even as they fail to deliver on current production quotas.

Concerns that Russia’s moves to step up its war effort in Ukraine could slow energy demand had provided some support for oil prices on Thursday.

Meanwhile, U.S. natural-gas futures declined along with oil. Traders are watching for any further Caribbean storm developments that could disrupt energy production in the Gulf of Mexico.

Tropical Depression Nine, which is expected to intensify into a hurricane next week, is expected to head into the eastern Gulf of Mexico.

Read: How investors may benefit from a dive in natural-gas prices as winter looms