Oil prices extend decline on recession fears

Oil prices fell for the third day in a row on Wednesday, as investors worried about the impact on fuel demand from rising global economic threats and increasing COVID-19 regulations in China. Brent crude futures had fallen 51 cents, or 0.5%, to $93.78 per barrel. West Texas Intermediate crude in the United States was trading at $88.66 per barrel, down 69 cents, or 0.8%. Both benchmarks plummeted 2% the day before. The International Monetary Fund lowered its global growth prediction for 2023 on Tuesday and warned of an increased chance of a worldwide recession.

However, the IMF advised central banks to continue fighting inflation, despite investor concerns that policymakers may cause a sudden economic slump by raising borrowing costs too quickly and too high.

Separately, Fed Bank of Cleveland President Loretta Mester stated that the U.S. Federal Reserve will need to continue tightening monetary policy in order to contain inflation. The pound rose sharply overnight as a top Bank of England official warned pension fund managers to finish rebalancing their positions by Friday when the British central bank’s bond-buying program is set to conclude.

A rising dollar raises the price of dollar-denominated commodities for holders of other currencies, putting pressure on oil and other risk assets. Traders are watching the release of U.S. CPI data on Thursday with bated breath, according to CMC Markets analyst Tina Teng. “Better-than-expected statistics may again tip investor mood over the edge, exacerbating current recession fears and pushing up oil prices,” Teng added. Tightening COVID-19 regulations in China, the world’s second-largest oil consumer is also putting pressure on the oil market.

After infections reached their peak in August, major Chinese cities such as Shanghai and Shenzhen increased COVID-19 testing and tightened restrictions. “Chinese authorities have indicated that they will not modify their COVID-19 policy, further aggravating the demand scenario,” ANZ Research analysts wrote in a note. On the supply side, crude oil stocks in the United States were anticipated to have climbed by 1.8 million barrels in the week ending Oct. 7, after falling in the previous two weeks, according to a preliminary Reuters poll released on Tuesday.

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