Key Insights
- Oil prices sank below $80 a barrel for the first time since August due to a strong dollar and weak demand.
- High interest rates and the threat of a global recession are reducing energy appetite, especially in emerging markets.
- Voluntary supply cuts by Russia and Saudi Arabia are preventing steeper declines for now.
Oil prices continued their downward slide on Tuesday, with the US benchmark West Texas Intermediate (WTI) futures falling below $80 a barrel for the first time since late August.
WTI crude futures for December delivery plunged 1.66% to $79.48 a barrel in trading on the London ICE exchange. The international Brent benchmark also sank 1.82% to $83.63 a barrel.
Why Oil Prices Are Droping
According to industry analysts, oil prices are being dragged down by a confluence of factors, including a surging US dollar and waning demand, especially from emerging markets and Japan. The strong greenback makes dollar-denominated crude more expensive for foreign buyers.
Meanwhile, high interest rates set by the Federal Reserve and other central banks to combat inflation have raised fears of a potential global recession. This is dampening energy appetite in key markets.
“Oil prices have now relinquished all of the gains made since the start of the recent Israel-Hamas conflict,” noted a report in The Wall Street Journal, highlighting the downward trajectory.
Unseasonably warm temperatures across Europe have also reduced demand for heating oil and diesel going into winter. This comes even as supplies remain constrained by voluntary production cuts from OPEC+ members Russia and Saudi Arabia.
As MarketsXplora reported, lowered output by Saudi Aramco amid declining prices contributed to a drop in quarterly profits for the first time since 2020. The Saudi oil giant posted $32.6 billion in third quarter earnings, down significantly from the $42.4 billion profit notched last year.
While the production cuts are preventing steeper declines for now, oil markets remain under heavy pressure from the gloomy economic outlook. Analysts say prices are likely to remain volatile in the near-term as uncertainty over demand and supplies persists.