Oil Falls Below $80 a Barrel


West Texas Intermediate crude futures dropped 5.7% to close at $78.74. The main U.S. oil price is down about 36% from its June peak and nearly to where it began the year. Brent crude, the global benchmark, shed 4.8% Friday to end at $86.15.

Behind the slide: A string of major central banks—including the Federal Reserve, the Bank of England, the

Swiss National Bank

and Norway’s Norges Bank—raised interest rates this week. Tightening financial conditions on a near-global basis have ratcheted up fears about a widespread economic slowdown, which would also mean lower energy demand. Business surveys Friday indicated that economic activity in Europe declined sharply in September.

Rising U.S. rates and falling stocks have also sparked a surge in the dollar, sending the WSJ Dollar Index up more than 1% Friday. Many commodities, including oil, are priced in dollars, so the strengthening currency makes them more expensive for overseas buyers.

“The market is worried about growth and this is sending commodity prices down,” said

Ole Hansen,

head of commodity strategy at Saxo Bank. “It’s a very bad cocktail of this and a stronger dollar.”

The S&P 500’s energy sector, one of the stock market’s bright spots this year, tumbled 6.7%. High-fliers

Halliburton Co.

and

Marathon Oil Corp.

fell 8.7% and 11%, respectively. European blue-chip oil stocks

BP

PLC and

Shell

PLC both dropped more than 5%.

Traders said recent data showing weakening U.S. fuel demand helped push prices lower. A looming recession in Europe is expected to damp energy consumption further, though high natural-gas prices are encouraging some industrial companies to burn diesel instead.

The Energy Information Administration this week said that total products supplied, a gauge of demand, averaged 19.6 million barrels a day over the past four weeks—down 6.7% from the same period of last year. Gasoline demand was down almost 8% and consumption of distillates—which include diesel—fell by 16%.

Meanwhile, the Department of Energy said this week it plans to sell up to 10 million barrels of oil from the Strategic Petroleum Reserve in November, extending a stretch of releases launched after Russia’s invasion of Ukraine. That will add to supply and tamp down prices, traders said.

“You’ve got the Fed raising rates. You’ve got the DofE swamping the market with crude oil,” said

Robert Yawger,

executive director for energy futures at Mizuho Securities.

In one sign of falling demand for fuel, profit margins from refining gasoline—known as crack spreads—have dropped in the U.S., Europe and Asia in recent weeks. “The cracks are getting destroyed,” said

Greg Newman,

chief executive officer at London-based oil-trading firm Onyx Capital Group.

U.S. crude prices have fallen to a discount of almost $7 a barrel compared with Brent, likely encouraging energy traders to send crude across the Atlantic. In part, Mr. Newman said, that reflects expectations that Europe will need to import more U.S. oil to replace Russian crude when the European Union bans Russian crude shipments from Dec. 5 as part of sanctions on Moscow for the invasion.

Even with growing expectations of a global recession next year, some traders say there are reasons to believe oil prices could stage a recovery. The EU ban is likely to lead Russian oil production to fall, leaving a hole in global supplies. Spare production capacity in most members of the OPEC cartel is limited. 

Analysts at JPMorgan Chase said this week they expect Brent prices to recover to $100 a barrel in the final quarter of the year.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Joe Wallace at joe.wallace@wsj.com

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