Crude down to 7-month lows as a looming recession fuels demand jitters

Front-month ICE Brent has slipped $2.81/bbl lower on the day since Friday, to $86.00/bbl at 09.00 GMT.

PHOTO: Oil prices are at their lowest in seven months on recession fears amid monetary tightening measures. Getty Images

Upward pressure:

OPEC may be “forced” to make an additional output cut if crude prices fall below current levels," Nigerian oil minister Timipre Sylva said in an interview with Bloomberg.

Crude prices are supported by the prospect of a stalled nuclear deal between Iran and the US. Both presidents told the UN General Assembly last week there are slim chances of an imminent breakthrough in negotiations.

Iran's Foreign Minister Hossein Amir-Abdollahian was quoted by Iran's official news agency IRNA as saying Washington must show determination and realism to make good on its promise to revive the 2015 nuclear deal. In the meantime, an official at the US State Department said, "We have hit a wall because of Iran's position."

Downward pressure:

Nouriel Roubini, an acclaimed economist known as "Dr. Doom" for correctly predicting the 2008 global financial crisis, now believes the US and the rest of the world are facing an ugly and long recession. “It will be a severe, long, and ugly recession, not a short and shallow one,” Roubini said in a Bloomberg interview, making yet another damning prediction. He believes the US and other major economies will experience a recession through 2023, depending on the severity of supply shocks and financial distress.

The threat of a global recession continues to weigh on oil prices. Widespread monetary tightening in the past week have fuelling fears of a significant hit to growth, according to OANDA senior market analyst Craig Erlam.

The US Dollar index has risen to its highest level since mid-2002, adding bearish pressure to crude prices. The ICE US Dollar Index, which measures the greenback against a basket of global currencies, has soared to a fresh 20-year high. It has been supported by safe-haven buying after multiple central banks hiked interest rates last week.

Bank of America expects the US economy to fall into a recession in the first half of next year, while Deutsche Bank warns that Europe will suffer an even deeper recession than predicted earlier as “Russia's indefinite shut-off of a key natural gas pipeline has intensified Europe's energy crisis.”

By Konica Bhatt

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