As worries about an impending economic downturn increased, oil prices dropped on Thursday. Benchmark Brent crude deflated around 3%, selling trade value at $93.50 per barrel, the lowest level since before Russia invaded Ukraine, sent prices soaring.
Growing concerns about an economic downturn in the United States/Europe, debt distress in emerging market economies, China’s strict zero COVID-19 policy, and the world’s largest oil importer all continued to cast a shadow over the demand outlook.
Fears that rising interest rates might slow the economy and reduce the demand for fuel led to additional pressure. On Thursday, the Bank of England (BoE) increased interest rates while issuing a recession risk warning.
Craig Erlam, a senior market analyst at Oanda in London, gave a glass-half-full perspective: “A break below $90 is now a genuine possibility which is quite remarkable given how tight the market remains, and how little scope there is to relieve that, but recession talk is getting louder and should it become a reality, it will likely address some of the imbalance.”
According to the Energy Information Administration, Brent Crude’s selling came after last week’s unexpected increase in U.S. crude inventories. As demand slowed, gasoline stocks—a proxy for it—also displayed an unexpected build. While West Texas Intermediate (WTI) crude futures had decreased by $2.37, or 2.6 percent, to trade at $88.29, and U.S. crude touched its lowest price since February 3 at $87.97.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, which includes Russia, are referred to as OPEC+. The Group has been increasing production in the past, but it has had difficulty meeting goals because most of its members have already reached their maximum output capacity.
An agreement reached by OPEC+ on Wednesday outlines that the Group will increase production output by 100,000 barrels per day. However, some analysts believe the market would decline 0.1 percent of global demand due to the agreement’s guidelines.
According to Edward Moya, senior analyst with OANDA, “It looks like OPEC+ is resisting calls to boost output because the crude demand outlook continues to get slashed. The world is battling the ongoing global energy crisis, and it won’t be getting any help from OPEC+.”
On Thursday, the Caspian Pipeline Consortium (CPC), which links Kazakh oil reserves with the Russian Black Sea port of Novorossiisk, supported prices by claiming that supplies were drastically down without offering specific numbers.
Edward Moya calmed the fearful chaos by suggesting a clear end to the madness, “Even if the global economic slump deepens, crude prices should find stable support around the $90 mark and finally recover towards the $100 mark.”