Oil prices hit lowest since Ukraine invasion amid recession fears

© Reuters. FILE PHOTO - A PetroChina worker inspects a pump jack at an oil field in Tacheng, Xinjiang Uighur Autonomous Region, China June 27, 2018. REUTERS/Stringer AT

By Noah Browning

LONDON/NEW YORK (Reuters) - Global oil prices dropped on Thursday to their lowest levels since before Russia's February invasion of Ukraine, as traders fretted over the possibility of an economic recession later this year that could torpedo energy demand.

Benchmark Brent crude futures settled down $2.66, or 2.75%, at $94.12, the lowest close since Feb. 18. West Texas Intermediate (WTI) crude futures settled down $2.34, or 2.12%, at $88.54, the lowest close since Feb. 2.

The fall in oil prices could come as a relief to large consumer nations including the United States and countries in Europe, which have been urging producers to ramp up output to offset tight supplies and combat raging inflation.

Oil had surged to well over $120 a barrel earlier in the year. A sudden rebound in demand from the darkest days of the COVID-19 pandemic coincided with supply disruptions stemming from sanctions on major producer Russia over its invasion of Ukraine.

Thursday's selling followed an unexpected surge in U.S. crude inventories last week. Gasoline stocks, the proxy for demand, also showed a surprise increase as demand slowed under the weight of gasoline prices near $5 a gallon, the Energy Information Administration said.

"Seems the weakness from Wednesday following weaker than expected U.S. implied gasoline demand, together with the break of technical support levels on Thursday, has dragged oil lower," said Giovanni Staunovo, an analyst at UBS.

The demand outlook remains clouded by increasing worries about an economic slump in the United States and Europe, debt distress in emerging market economies, and a strict zero COVID-19 policy in China, the world's largest oil importer.

"A break below $90 is now a very real possibility, which is quite remarkable given how tight the market remains and how little scope there is to relieve that," said Craig Erlam, senior market analyst at Oanda in London.

"But recession talk is getting louder and should it become reality, it will likely address some of the imbalance."

The Bank of England (BoE) raised interest rates on Thursday and warned about recession risks.

An OPEC+ agreement on Wednesday to raise its output target by 100,000 barrels per day (bpd) in September, equivalent to 0.1% of global demand, was viewed by some analysts as bearish for the market.

OPEC heavyweights Saudi Arabia and the UAE are also ready to deliver a "significant increase" in oil output should the world face a severe supply crisis this winter, sources familiar with the thinking of the top Gulf exporters said.