Oil fell to the lowest since January on concern a global slowdown will cut demand in Europe and the US, just as China’s Covid Zero strategy hurts consumption in the world’s biggest crude importer.
West Texas Intermediate sank toward $85 a barrel, after erasing a gain driven by the decision by the Organisation of Petroleum Exporting Countries and its allies on Monday to pare output. Reflecting the softness, Saudi Arabia has reduced prices for customers in Asia and Europe for next month’s shipments.
An additional headwind for commodities including crude came from the dollar’s surge to an all-time high on Wednesday, according to a Bloomberg gauge. The currency’s ascent makes oil more expensive for buyers outside the US.
Crude has made a weak start to September, extending a run of three monthly losses that was the worst streak in more than two years. With central banks jacking up rates to quell inflation, investors are concerned economies may be tipped into recession. OPEC+ leader Saudi Arabia said this week it’s ready to manage the market proactively, raising the possibility of more supply cuts.
“Having priced for the OPEC+ output cut with a short-lived up-move, oil prices continue to struggle with the weaker demand outlook story,” said Yeap Jun Rong, market strategist at IG Asia Pte. “Headlines of China’s virus restrictions renewed the downward bias over the demand outlook, with an added headwind for oil prices coming from further strength in the US dollar.”
WTI for October delivery was 1.7% lower at $85.42 a barrel on the New York Mercantile Exchange at 11:39 a.m. in Singapore.
Earlier, prices fell to $85.17 a barrel, the lowest intraday price since Jan. 26.
Brent for November settlement dropped 1.3% to $91.61 a barrel on the ICE Futures Europe exchange.
In China, strict virus curbs are damping demand. Among locations facing restrictions, Chengdu has extended a stay-at-home order for its 21 million residents, while Beijing intensified efforts after finding new cases, and the southern tech hub of Shenzhen continues to be subject to movement controls.
Oil’s retreat will help to ease some of the inflationary pressures coursing through the global economy by cooling product prices, including for gasoline. US retail pump prices for the key motor fuel have dropped for more than 80 days to the lowest since March, according to data from auto club AAA.
Widely-watched oil market time spreads have been volatile. Brent’s prompt spread — the difference between its nearest two contracts — was at 86 cents a barrel in a backwardation , compared with $1.34 at the start of the week.