Oil falls on stronger dollar and fears rates hike will slow recovery

Tokyo — Oil prices slumped on Monday, ending three days of gains, as investors were concerned aggressive US interest rate hikes will weaken the global economy and dent fuel demand while a strengthening dollar also added to pressure.

Brent crude futures for October settlement declined $1.20, or 1.2%, to $95.52 a barrel by 6.58am.

US West Texas Intermediate (WTI) crude futures for September delivery, due to expire on Monday, were down $1.24, or 1.4%, at $89.53 a barrel. The more active October contract was at $89.27, down $1.17, or 1.3%.

Brent and WTI climbed for a third consecutive day on Friday, but fell about 1.5% for the week on a stronger dollar and demand fears.

“Growing fears over a global economic slowdown are behind the fall in oil markets,” said Tatsufumi Okoshi, senior economist at Nomura Securities.

“A higher US dollar also prompted fresh selling,” he said.

The dollar index rose to a five-week high on Monday after Richmond Fed president Thomas Barkin said the “urge” among central bankers is towards faster, front-loaded interest rate increases.

A stronger dollar makes oil more expensive for buyers in other currencies.

Investors will be paying close attention to comments by Fed chair Jerome Powell when he addresses an annual global central banking conference in Jackson Hole, Wyoming, on Friday.

The Fed is seen as having more room to hike rates than central banks of other large economies that are more fragile.

Prices also fell on worries over slowing fuel demand in China, the world’s largest oil importer, because of a power crunch in the southwest caused by a heatwave.

“China’s power restriction in some regions is also a concern as it could affect economic activity,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

China’s southwestern province of Sichuan will extend curbs on industrial power consumers until August 25 as it tries to deal with dwindling hydropower output and surging household electricity demand after a long heatwave, financial news service Caixin said.

In a sign of overall concern about the Chinese economy, Beijing cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday, adding to last week’s easing measures, to revive an economy hobbled by a property crisis and a resurgence of Covid-19 cases.

Meanwhile, the leaders of the US, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal, the White House said on Sunday, though no further details were provided.

Reuters