Oil sinks to 8-month low on dollar strength and recession fears

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Both contracts were in technically oversold territory with WTI on track for its lowest close since Jan 10, Brent since Jan 13.

For the week, WTI is down 7% and Brent 6%. It is the fourth consecutive week of declines for the benchmark indices and the first time since December.

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“The crude oil market is under strong selling pressure as the US dollar remains on a strong upward trajectory amid further reduction in risk appetite,” analysts at energy consultancy Ritterbusch and Associates told Reuters.

The US dollar was on track for its highest close against a basket of other currencies since May 2002. A strong dollar reduces demand for oil because it makes fuel more expensive for buyers using other currencies.

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World stocks hit their lowest level in two years, while the dollar index hit its highest in two decades, pushing down oil. “Recession fears, further rate hikes and subsequent dollar strength trump geopolitical tensions,” he said. Tamas VargaPVM Oil Associates analyst in dialogue with Reuters.

“The Oil gains will be limited as long as the dollar is strongalthough the referendum to be staged in the eastern part of Ukraine could further increase the tension between Russia and the West, especially if the Ukrainian allies provide additional help for Ukraine to recover these territories,” he added.

Russia launched on Friday referendum to annex four occupied regions of Ukraine, something that kyiv described as an illegal farce. After the United States Federal Reserve raised rates by 75 basis points on Wednesday, central banks around the world followed suit with hikes of their own, raising the risk of an economic slowdown. The dollar was positioned strong this Friday.

Added to this is the general fall in the market and the government bonds of the United Kingdom, which are going through a fall for el Government announcement of a regressive tax reform, with lower taxes, removal of ceilings on bank bonds and increased debt. The announcement was parallel to the release of a report announcing that the country’s economy was in recession due to the drop in commercial activity.

Regarding the oil supply, efforts to revive 2015 Iran nuclear deal stalledas Tehran insists on shutting down investigations by the UN nuclear watchdog, a senior US State Department official told Reuters, easing expectations of a resurgence in its crude exports.

Source: Ambito

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