NEW YORK: Oil prices fell by about 1% on Monday as investors weighed economic storm clouds that could foreshadow a global recession and erosion of fuel demand against potentially tight supply .
Brent crude futures fell 96 cents, or 1%, to $96.96 a barrel by 11:31 a.m. EDT (1531 GMT). West Texas Intermediate crude declined by 71 cents, or 0.8%, to $91.93 a barrel.
US Federal Reserve Chicago President Charles Evans said there was a strong consensus at the Fed to raise the target policy rate to around 4.5% by March and hold it there.
Stubbornly higher rates, which are aimed at giving the US central bank time to evaluate the impact of inflation and allow clogged supply chains to clear, limited oil prices.
“There’s more of the doom and gloom from those folks and what they’re going to do to the economy, because they’re not so convinced they have inflation under control, and that’s the macro play that’s weighing on oil,” said John Kilduff, partner at Again Capital LLC in New York.
Oil prices also struggled under a strengthening US dollar, which rose for a fourth session. A stronger dollar makes crude more expensive for non-American buyers.
Still, the prospect of tightening oil supplies limited declines in prices.
The Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, decided last week to lower their output target by 2 million barrels per day.
Brent and WTI posted their biggest weekly percentage gains since March after the reduction was announced.
The OPEC+ cuts will squeeze supply in an already tight market. EU sanctions on Russian crude and oil products will take effect in December and February respectively.
Concerns over still relatively robust demand as the pandemic has eased meeting potentially scarce supply have been deepened as the European Union late last week endorsed a G7 plan to impose a price cap on Russian oil exports.
The complicated new sanctions package could end up shutting in considerable supplies of Russia crude, analysts have warned.
“A recessionary economic outlook will lead to lower oil demand,” Fitch Ratings said on Monday. “However, we expect pricing volatility to remain high in the short term as geopolitical factors, such as further sanctions leading to a reduction in Russian exports.” Those political factors could alter supply patters and cause greater price volatility, Fitch said.
Meanwhile, services activity in China during September contracted for the first time in four months as COVID-19 restrictions hit demand and business confidence, data showed on Saturday.
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