Oil prices slump in worst weekly loss in months as recession fears weigh on demand outlook

Economic growth is slowing in China and several European countries

TAFT, CA - JULY 22:  Oil rigs just south of town extract crude for Chevron at sunrise on July 22, 2008 in Taft, California. Hemmed in by the richest oil fields in California, the oil town of 6,700 with a stagnant economy and little room to expand has hatched an ambitious plan to annex vast expanses of land reaching eastward to Interstate 5, 18 miles away, and taking over various poor unincorporated communities to triple its population to around 20,000. With the price as light sweet crude at record high prices, Chevron and other companies are scrambling to drill new wells and reopen old wells once considered unprofitable. The renewed profits for oil men of Kern County, where more than 75 percent of all the oil produced in California flows, do not directly translate increased revenue for Taft. The Taft town council wants to cash in on the new oil boom with increased tax revenues from a NASCAR track and future developments near the freeway.  In an earlier oil boom era, Taft was the site of the 1910 Lakeside Gusher, the biggest oil gusher ever seen in the US, which sent 100,000 barrels a day into a lake of crude.  (Photo by David McNew/Getty Images)
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Oil prices posted their worst weekly decline in months on mounting recession concerns.

Brent, the benchmark for two thirds of the world’s oil, settled 0.07 per cent lower at $76.10 at the close of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, closed 0.62 per cent lower at $71.02 a barrel.

Prices had slightly edged up on Thursday after a 622,000 barrel-per-day Keystone pipeline, which transports Canadian crude to refiners in the US Midwest and the Gulf Coast, was shut down after more than 14,000 barrels of crude oil spilled into a creek in Kansas. But recession fears weighed on prices.

"The short-term crude demand outlook has deteriorated significantly as no one has a strong handle on how bad a recession will hit the US economy," said Edward Moya, senior market analyst at Oanda.

"China’s Covid situation also remains a big concern as the end of their Covid zero strategy could cripple their health system."

Oil prices could find a floor at $70 a barrel, analysts said, with the US having previously indicated that it would refill its Strategic Petroleum Reserve (SPR) when crude falls to between $67 and $72.

Earlier this week, oil prices fell to below $80 a barrel for the first time since January on persistent fears of a recession and rising interest rates.

Markets have largely “shrugged” the EU embargo on Russian seaborne crude imports, with most players now assuming that the ban will displace less oil that previously expected, Moody’s said in its weekly market outlook report.

“Despite the apparent easing of its zero-Covid policy, China’s economy is weakening, and many European countries appear to be teetering on the brink of recession,” it said.

Global economic growth is forecast to be as weak as in 2009 — during the financial crisis — as a result of the Ukraine conflict and its impact on the world economy, the Institute of International Finance said in a report this month.

The world economy is projected to grow by 1.5 per cent next year, compared with 0.6 per cent in 2009, the IIF said.

This assessment follows the International Monetary Fund's move to slash its global economic growth forecast for next year due to the effects of the Ukraine conflict, broadening inflation pressures and a slowdown in China, the world’s second-largest economy.

The fund maintained its global economic estimate for this year at 3.2 per cent but downgraded next year's forecast to 2.7 per cent — 0.2 percentage points lower than the July forecast.

There is a 25 per cent probability that growth could fall below 2 per cent next year, the IMF said in its World Economic Outlook report released in October.

Updated: December 10, 2022, 5:24 AM