Oil prices fell more than $1 on Wednesday to their lowest levels since before Russia invaded Ukraine as Covid-19 restrictions in China, the largest importer of crude, and expectations of higher interest rates led to fears of a global economic recession and lower demand for fuel.
Brent crude futures fell $1.35, or 1.5 percent, to $91.48 a barrel by 0420 GMT, after falling 3 percent in the previous session. The contract hit an intra-session low of $91.35, the lowest since Feb. 18.
US West Texas Intermediate crude futures fell $1.55, or 1.8 percent, to $85.33. The benchmark index fell to a session low of $85.17, its lowest since Jan. 26.
Oil pared strong gains on Monday after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, decided to cut production by 100,000 barrels per day in October.
“The OPEC+ production cut rebound has not been that hard to fade given a laundry list of global economic challenges,” Edward Moya, chief market analyst at Oanda, said in a note.
“Despite some better-than-expected US services data, global growth doesn’t look good at all and this is a problem for crude oil prices.”
A strong US dollar, steep rises in interest rates, soaring bond yields and slowing growth in China are all weighing on oil prices, said Tina Ting, analyst at CMC Markets.
“In short, oil futures market prices are ‘stagflation’ in the global economy,” Teng added.
China’s strict policy not to spread the new coronavirus has kept cities like Chengdu, with a population of 21.2 million people, under lockdown, limiting the movement of people and demand for oil in the world’s second largest consumer.
The country’s exports and imports lost momentum in August with growth significantly missing expectations. Customs data showed that imports of crude oil fell 9.4% in August from a year earlier, as purchases limited outages at state-run refineries and declines in operations at independent plants amid weak profit margins.
Investors are also watching for further rate increases to curb inflation. The European Central Bank is widely expected to raise interest rates sharply when it meets on Thursday. After the European Central Bank meeting, the Federal Reserve will follow a meeting on September 21.
The dollar hit a 24-year high against the yen and hit new records against the Australian and New Zealand dollars on Wednesday after US economic data reinforced the view that the Federal Reserve will continue to tighten policy.
However, providing some support to prices were expectations of declining oil inventories in the US.
A preliminary poll conducted by Reuters showed on Tuesday that US crude stocks are expected to decline for the fourth consecutive week, falling by an estimated 733,000 barrels in the week ending Sept.
Crude oil stocks in the US Strategic Petroleum Reserve fell 7.5 million barrels in the week ending September 2 to 442.5 million barrels, the lowest level since November 1984, according to data from the Department of Energy.
Weekly US inventory reports from the American Petroleum Institute and the Energy Information Administration will be released on Wednesday and Thursday, respectively, one day later than usual, due to a public holiday on Monday.
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