Oil closes lower, with dollar rally and global recession prospects

Oil futures contracts closed lower this Monday (26) in a session in which the high dollar pressures the commodity, quoted in the American currency.

In addition, the prospects of an eventual global recession continue to weigh on demand projections. Disputes between Russia and European countries continue, with EU member states moving to try to cap the price of Russian oil as governments seek measures to deal with the energy surge.

The WTI oil contract for November closed down 2.58% ($2.03) at $76.71 a barrel on the New York Mercantile Exchange (Nymex), and Brent for December fell 2.55 % ($2.17), at $82.86 a barrel, on the Intercontinental Exchange (ICE).

For Edward Moya, an analyst at Oanda, the chaos in the currency markets could keep oil prices under pressure, no matter what the Organization of the Petroleum Exporting Countries and allies (OPEC+) does in the short term. “Exchange volatility is not going to decrease anytime soon and that will send oil on a very long roller coaster,” he projects.

The analyst also points out that the Ifo index in Germany pointed to the lowest level for business sentiment since May 2020, in addition to regional Federal Reserve (Fed) surveys that disappointed, composing a scenario with a drop in the outlook for demand.

European Union countries are struggling to reach an agreement on imposing a price cap on Russian oil and will likely hold off on a discussion on the matter until a broader sanctions package is agreed.

According to the Bloomberg, Cyprus and Hungary are among those who expressed opposition to the proposed cap. Sanctions in the EU require unanimity, giving each nation an effective veto.

The European Commission, the bloc’s executive arm, met with member states over the weekend to try to reach an agreement on the package of restrictive measures.

Countries could press for a preliminary deal ahead of an informal meeting of EU leaders in Prague on October 6. Meanwhile, Germany is preparing to adopt a local ceiling on energy prices, a measure that is also being discussed at the European level.