Oil Slumps 5% on Recession Worries, Strong U.S. Dollar

By Scott DiSavino

NEW YORK (Reuters) – Oil prices tumbled about 5% on Friday to four-week low, on worries that interest rate hikes from major central banks could slow the global economy and cut demand for energy.

Also pressuring prices, the U.S. dollar this week rose to its highest since December 2002 against a basket of currencies, making oil more expensive for buyers using other currencies.

Brent futures for August delivery fell $6.19, or 5.2%, to $113.62 a barrel by 1:19 p.m. EDT (1719 GMT). U.S. West Texas Intermediate (WTI) crude fell $7.29, or 6.2%, to $110.30.

Brent was on track for its lowest close since May 20 and WTI for its lowest since May 24. Brent was headed for its first weekly dip in five weeks, WTI for its first weekly decline in eight weeks.

There will be no U.S. trading on Monday, June 20, for the Juneteenth holiday.

“With the central banks making pretty substantial moves to limit growth via interest rate hikes and monetary tightening is showing up here in the petroleum complex,” said John Kilduff, partner at Again Capital LLC in New York, noting slower economic growth should cut energy demand.

Global central bankers who quickly loosened monetary policy during the pandemic to avoid a depression, are now tightening to fight inflation. The Federal Reserve this week hiked U.S. rates by the most in more than a quarter of a century.

“The influence of the macro environment has started to take over from oil-specific fundamentals in recent days,” said Investec’s head of commodities Callum Macpherson.

With the Fed expected to keep raising interest rates, open interest in WTI futures on the New York Mercantile Exchange fell on Thursday to its lowest since May 2016 as investors cut back on risky assets.

U.S. gasoline futures slid about 6% on worries high pump prices will reduce demand.

Automobile group AAA said the price of diesel at the pump hit a record high $5.798 per gallon on Friday, while the price of gasoline hit its record of $5.016 earlier in the week.

The global oil market continues to show signs of “turbulence”, Russian Deputy Prime Minister Alexander Novak said, blaming uncertainties over oil production recovery in Libya, Iran and Venezuela and a lack of energy infrastructure.

The market’s turbulence has increased since Russia invaded Ukraine on Feb. 24.

Russian gas flows to Europe fell short of demand on Friday as an early heatwave in the south boosted demand for air-conditioning.

The European Union’s executive recommended that Ukraine and Moldova become candidates for membership in the world’s largest trading bloc.

In the United States, energy firms this week added just four oil rigs as President Joe Biden slammed producers for profiting from sky-high prices instead of doing more to boost output. [RIG/U]

(This story fixes typographical error in headline)

(Additional reporting by Bozorgmehr Sharafedin in London, Arathy Somasekhar in Houston and Jeslyn Lerh in Singapore; Editing by Marguerita Choy, David Evans and David Gregorio)