Brent crude slides below $85 a barrel as dollar surges

An aerial view of Phillips 66 oil refinery is seen in Linden, New Jersey, United States.
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Brent crude fell below $85 a barrel Monday, as recession fears weighed and the U.S. dollar surged.

Brent futures for November settlement shed 2.1% to trade at $84.32 per barrel around 1:20 p.m. on Wall Street. West Texas Intermediate futures fell 2.3% to trade at $76.97 per barrel, a price last seen in early January.

The U.S. dollar surged to a high not seen since 2002 Monday, while sterling tumbled to a record low against the currency.

On Friday, both Brent and WTI futures fell around 5%.

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The drop in oil prices is a “macro move led by a stronger dollar,” which is triggering fears of a recession, according to Amrita Sen, co-founder and director of research at Energy Aspects.

The surge against other currencies means dollar-denominated assets such as oil have grown more expensive for investors holding foreign currencies and “have weighed on futures prices,” according to John Morley, associate editorial director for EMEA crude and fuel oil at S&P Global.

It comes as central banks around the world — including the U.S. and the U.K. — continue to hike interest rates in an effort to tackle inflation.

Investment bank Saxo’s strategy team said market sentiment was continuing to deteriorate.

“The unrelenting pressure on commodities, including crude oil, continues following Friday’s gloomy session which saw accelerated dollar strength and growth pessimism cause a ripple through markets,” Ole Hansen, Head of Commodity Strategy at Saxo said.

“WTI trades below $80 per barrel while a return to the mid-80’s in Brent may soon see OPEC+ action to support prices,” he said.

As Russia warned it will not supply commodities to nations agreeing to cap prices for its crude and markets anticipate a recession, “the energy sector could be the first to find support once the dollar stabilises,” Hansen said.

Fears around an economic slowdown continue to mount, with Steve Hanke, professor of applied economics at Johns Hopkins University, putting the chance that the U.S. will fall into recession at 80%.

“If [the Fed] continue[s] the quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it’ll be severe,” Hanke told CNBC’s “Street Signs Asia” on Friday.

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