Earlier in the session, crude fell to its lowest level since January, as a surge in the dollar weighed on risk assets from equities to commodities. The currency’s ascent makes oil more expensive for buyers outside the US.
“With multiple uncertainties on both the supply and demand side it is what we should expect for the foreseeable future,” said Ole Hansen, head of commodities strategy at Saxo Bank. “A price cap may end up actually lifting the price instead of lowering the price of oil.”
Crude has made a soft start to September, extending a run of three monthly losses that’s the longest streak in more than two years. With central banks jacking up rates to quell inflation, investors are concerned economies may tip into recession. In China, virus curbs are damping demand, with centers from Chengdu to Shenzhen extending lockdowns or adopting movement controls.
Crude prices have largely lost the momentum provided by a decision from the Organization of Petroleum Exporting Countries and its allies on Monday to pare output, a move championed by Saudi Arabia. Still, reflecting the market softness, Riyadh also reduced prices for customers in Asia and Europe for next month’s shipments.
Oil’s retreat has also been accompanied by a darkening technical picture. WTI’s 50-day moving average fell below its 200-day gauge for the first time since September 2020, a bearish cross which could signal further price declines.
Widely-watched oil market timespreads have been volatile. Brent’s prompt spread — the difference between its nearest two contracts — was at 93 cents a barrel in a backwardation, compared with $1.34 at the start of the week.