Oil prices settled higher on Friday but closed the week at their lowest levels since February amid growing recession fears and a fall in demand for crude globally.
Brent, the global benchmark for two thirds of the world’s oil, closed 0.85 per cent higher at $94.92 a barrel, recovering some of the losses from earlier lows during the week, but still down 11 per cent from last week's settlement.
West Texas Intermediate, the gauge that tracks US crude, settled up 0.53 per cent at $89.01 a barrel, but down 8 per cent from last Friday's close.
“It hasn't been the most bullish week of headlines for crude, whether that be all of the recession chat, the new Opec+ deal or the EIA [Energy Information Administration] inventory build,” said Craig Erlam, senior market analyst, UK and Europe, Middle East and Africa, at Oanda.
“The headlines have all been negative and so the price has continued to fall.”
WTI has broken the below $90 per barrel mark, which was last seen before the Russian invasion of Ukraine.
"Clearly, everyone is taking the threat of recession far more seriously as we're still seeing a very tight market and producers with no capacity to change that, barring a couple,” Mr Erlam said.
Oil prices have remained volatile this year after hitting close to $140 a barrel in April following Moscow’s military offensive in Ukraine and subsequent sanctions by the US and the UK on crude imports from Russia.
Rising recession fears were earlier this week reinforced after the Bank of England policy meeting, Jeffrey Halley, senior market analyst of Asia Pacific at Oanda, said.
The UK, the world’s fifth-largest economy, will enter five consecutive quarters of recession, with gross domestic product falling as much as 2.1 per cent, the central bank said, as it warned of a significant squeeze on living standards.
Last week, the International Monetary Fund also lowered its growth forecast for the global economy to 3.2 per cent this year, from its previous forecast of 3.6 per cent in April, due to Russia’s war in Ukraine that has exacerbated inflationary pressures and derailed the momentum of the recovery from the Covid-19 pandemic and a slowdown in China.
“Brent crude broke below its 2022 uptrend at $109 in early July and it seems unlikely we will see $110 Brent again this year, barring Eastern European shocks,” Mr Halley said.
The 23-member Opec+ super-group of oil producers last week agreed to boost output modestly in September amid a slowdown in the global economy.
The group will increase production by 100,000 barrels per day next month, however, "there are concerns about oil demand”, said Naeem Aslam, chief market analyst at Avatrade.
Last month, the International Energy Agency trimmed its global oil demand forecast for this year and the next as the worsening macroeconomic outlook and fears of a recession dampen market sentiment.
Oil demand is now expected to expand 1.7 million bpd in 2022 (down slightly from the IEA's forecast of 1.8 million bpd in June) and 2.1 million bpd in 2023 (compared with the 2.2 million bpd June forecast), to reach 99.2 million bpd and 101.3 million bpd, respectively, the Paris-based agency said in its Oil Market Report.
Higher output from Libya, an Opec member, is also affecting the supply side of the market. The North African country restored crude production this week, which could lead to about 1 million bpd returning to the market, said Khatija Haque, head of research and chief economist at Emirates NBD.
Last month, Libya shut down two of its biggest export terminals, Asidra and Ras Lanuf, and its El-Feel oilfield amid the continuing political turmoil that has hit the country's production.