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U.S. oil prices drop below $80 a barrel to their lowest finish since January on recession fears

By Myra P. Saefong and William Watts

WTI oil futures fall more than 7% for the week

Oil prices dropped sharply Friday, with U.S. crude below $80 a barrel to mark the lowest finish since January, as recession fears gripped financial markets, sinking equities and government bonds, while contributing to a further rise by the U.S. dollar.

Price action

Market drivers

Global equities fell sharply Friday, with benchmark stock indexes also logging steep losses on Wall Street.

Oil fell "in sympathy with the broader financial markets, as traders grapple with fears of a massive recession," Manish Raj, chief financial Officer at Velandera Energy Partners, told MarketWatch. "Geopolitical tensions in monstrous proportions, inflation at a multi-decade high and the dollar surging unabated are all certain to cause demand destruction for oil."

The Federal Reserve earlier this week delivered another outsize interest rate hike and signaled it would drive rates higher than market participants had previously anticipated.

The Fed's position that it will "prioritize taming inflation even at the cost of a recession did not exude any confidence in an already shaky market," said Raj. "To make matters worse, oil supply remains unabated, particularly with Russian oil being gobbled up without constraints."

Read:Why Europe's efforts to cap Russian oil prices and ban imports are doomed to fail

A number of other global central banks also delivered rate increases this week, underlining investor worries about the economic outlook.

"Economic turmoil is putting oil on track for its first quarterly loss in two years as the market focuses on the potential coming recession inspired by aggressive [Fed] Reserve policy, and is not focused currently on the undersupplied supply squeeze that is facing the world this winter," Phil Flynn, senior market analyst at The Price Futures Group, in a Friday report.

The market, however, remains tight, said Craig Erlam, senior market analyst at OANDA, and the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have signaled they're willing to restrict supply further even as they fail to deliver on current production quotas.

Concerns that Russia's moves to step up its war effort in Ukraine could slow energy demand had provided some support for oil prices on Thursday.

Meanwhile, U.S. natural-gas futures declined along with oil. Traders are watching for any further Caribbean storm developments that could disrupt energy production in the Gulf of Mexico.

Tropical Depression Nine, which is expected to intensify into a hurricane next week, is expected to head into the eastern Gulf of Mexico.

Read:How investors may benefit from a dive in natural-gas prices as winter looms

-Myra P. Saefong


(END) Dow Jones Newswires

09-23-22 1519ET

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