(Reuters) – After a turbulent week, oil prices fell more than 1% on Thursday as economic concerns and recession fears haunted global financial markets, outweighing supply concerns and geopolitical tensions in Europe.
At 0303 GMT, Brent oil futures were down $1.25, or 1.2 percent, to $106.26 per barrel.WTI crude futures fell $1.24 per barrel, or 1.2 percent, to $104.47 per barrel.
Oil prices are under pressure this week, along with global financial markets, on anxieties over increasing interest rates, the strongest U.S. currency in two decades, and concerns over inflation, and a probable recession. Prolonged COVID-19 lockdowns in the world’s biggest crude importer, China, have also damaged the market.
“Those recession fears are pounding louder and pulling oil lower this morning,” said Howie Lee, an economist at Singapore’s Oversea Chinese Banking Corp, referring to strong U.S. consumer price index (CPI) data on Wednesday.
The headline CPI in the United States increased 8.3 percent in the year to April, confirming fears that interest rates will need to rise quickly to keep up.
However, supply fears emanating from Russia’s invasion of Ukraine have bolstered the market, with prices climbing over 35 percent so far this year. Prices are rising in anticipation of upcoming European Union restrictions on oil from Russia, a key EU supplier of crude and fuel.
The EU is still arguing over the specifics of the Russian ban. The decision needs support from everyone, but it has been put off because Hungary is against the ban because it would hurt its economy too much.
On Wednesday, oil prices increased 5 percent after Russia sanctioned 31 firms headquartered in nations that imposed sanctions on Moscow following the Ukraine incursion.
That prompted uneasiness in the market at the same time that Russian natural gas shipments to Europe via Ukraine plummeted by a quarter. It was the first time exports across Ukraine had been hindered since the invasion.
Fears of a drop in demand in China have kept prices from going up, as Beijing works to stop the spread of the coronavirus.
“Until we see some meaningful policy support coming through in China or officials embrace an alternate plan to COVID (which looks extremely unlikely), oil prices might stay constrained in the short term,” said Stephen Innes, managing partner at SPI Asset Management.
The Energy Information Administration said on Wednesday that commercial crude stocks went up last week because the U.S. released a record amount of oil from its strategic reserves. On the other hand, gasoline stocks went down before the busy driving season of summer.
