Oil prices hit their lowest levels since the Ukrainian invasion, amid fears of a recession

FILE PHOTO – A PetroChina worker inspects a crane at an oil field in Tacheng, Xinjiang Uyghur Autonomous Region, China, June 27, 2018. REUTERS/Stringer At

LONDON/NEW YORK (Reuters) – Global oil prices fell on Thursday to their lowest levels since before the Russian invasion of Ukraine in February, as traders worried that a recession later this year could stifle energy demand.

Brent crude futures closed down $2.66, or 2.75%, at $94.12, their lowest close since February 18. West Texas Intermediate (WTI) crude futures closed down $2.34, or 2.12%, at $88.54, the lowest close since February 2.

The drop in oil prices may come as a relief to large consuming nations including the United States and countries in Europe, which are urging producers to ramp up production to make up for supply shortages and combat hyperinflation.

Oil climbed to over $120 a barrel earlier in the year. The sudden rebound in demand from the darkest days of the COVID-19 pandemic coincided with supply disruptions caused by sanctions imposed on major producer Russia over its invasion of Ukraine.

Thursday’s sell-off came on the heels of an unexpected rise in US crude inventories last week. The Energy Information Administration said gasoline stocks, a proxy for demand, also showed a surprise increase as demand slowed under the weight of gasoline prices near $5 a gallon. Read more

“It appears that the weakness that started on Wednesday after the implied weak US demand for gasoline, along with the breach of technical support levels on Thursday, pushed oil lower,” said Giovanni Stonovo, analyst at UBS.

Demand outlook continues to be clouded by mounting concerns about economic recession in the United States and Europe, debt distress in emerging market economies, and a tough zero-policy COVID-19 in China, the world’s largest oil importer.

“A breakout below $90 is now a very real possibility, which is very impressive given how tight the market is and how little room there is to mitigate that,” said Craig Erlam, chief market analyst at Oanda in London.

“But talk of recession is getting louder, and if it becomes a reality, it will likely address some of the imbalance.”

The Bank of England (BoE) raised interest rates on Thursday and warned of the risks of a recession.

Some analysts considered the OPEC + agreement on Wednesday to raise the production target by 100,000 barrels per day in September, equivalent to 0.1% of global demand, as a downward trend for the market. Read more

Sources familiar with the thinking of major Gulf exporters said the two OPEC heavyweights are also ready to achieve a “significant increase” in oil production if the world faces a severe supply crisis this winter. Read more

Additional reporting by Laura Sanicola, Richard Valdmanis and Emily Chow. Editing by Bernadette Bohm and Kirsten Donovan

Our criteria: Thomson Reuters Trust Principles.