Oil slumps by over $2 a barrel as markets bogged by recession fears

Oil fell by about $2 per barrel on Friday, swept up in a wider rout in global equities on fears of a looming recession, after central banks across Europe and North America signaled they will continue to battle inflation aggressively.

Brent crude futures fell $1.96, or 2.4 per cent, to $79.25 a barrel by 1:20 p.m. EDT (1820 GMT), while West Texas Intermediate futures were down $1.52, or 2 per cent, to $74.59 a barrel.

The U.S. Federal Reserve indicated it will raise interest rates further next year, even as the economy slips toward a possible recession. On Thursday, the Bank of England and the European Central Bank also raised interest rates to fight inflation.

“The talk around the campfire has suddenly become all about demand destruction in the face of a recession,” said Robert Yawger, director of energy futures at Mizuho.

“The economic situation is less than stellar. Not today, but we are drifting in the direction of testing $70-per-barrel WTI again, and things could get very ugly from there.”

Brent futures are still on pace for their biggest weekly gains since October after a rally earlier in the week. However, this week’s gains follow the worst weekly rout since August for the oil benchmark.

Heavy crude benchmarks have strengthened as the Canada-to-U.S. Keystone pipeline shutdown continues without a timetable for restart. While the outage is supportive for prices of heavier crude oil grades, it is “doing nothing” for lighter global benchmarks, said Matt Smith, lead oil analyst at Kpler.

Oil prices briefly erased some losses after officials said the U.S. Energy Department will repurchase 3 million barrels of domestic crude oil for the Strategic Petroleum Reserve, the first purchase since this year’s record 180 million barrel release from the stockpile.

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