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Oil prices slump on stronger dollar and global recession fears

Oil prices fell on Monday after three days of gains. Photo: Getty
Oil prices fell on Monday after three days of gains. Photo: Getty (Pramote Polyamate via Getty Images)

Oil prices slumped on Monday amid recession worries that hawkish interest rate hikes from the Federal Reserve will hurt an already-weak global economy and knock fuel demand.

Brent crude (BZ=F) fell as much as 1.8% to $94.94 (£80.43) a barrel in early trade on Monday, while US light crude (CL=F) dipped 2% to $89 at the time of writing.

Oil giants Shell (SHEL.L) and rival BP (BP.L) weighed on the commodity heavy FTSE 100 (^FTSE) index.

Shares in Shell fell 1.1% and BP dropped 0.9% as crude prices tumbled on worries about the weakening global economic outlook and hit to fuel demand.

The slump came as a stronger US dollar also prompted a fresh selling in the market.

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Read more: FTSE 100 and European stocks trade lower as investors fret over rate hikes

On Monday the greenback hit parity again against the euro (USDEUR=X) for the first time since mid-July, with the common currency trading hands against the dollar for as little as 99 cents.

Sterling (GBPUSD=X) was not far behind as the pound also weakened against the dollar, down 0.1% to $1.181 at the time of writing.

Richard Hunter, head of markets at Interactive Investor, said: "The more recent strength of the US dollar as a haven investment has pulled the rug from sterling, which has had the impact of underpinning the premier index [FTSE 100] which derives much of its income from overseas, thus making those earnings more valuable in translation."

Meanwhile, reports over the weekend have suggested that Iran and Western nations were close to striking a deal that would lift sanctions on crude supply from the West Asian country.

On Sunday, the White House said that US president Joe Biden, UK prime minister Boris Johnson, French president Emmanuel Macron, and German chancellor Olaf Scholz discussed efforts to revive the 2015 Iran nuclear deal.

"In addition, they discussed ongoing negotiations over Iran’s nuclear program, the need to strengthen support for partners in the Middle East region, and joint efforts to deter and constrain Iran’s destabilising regional activities," the White House said in its description of the call.

Watch: Why are gas prices rising?