SINGAPORE – Oil retreated to the lowest level since January on concern a global slowdown will cut demand in Europe and the US just as China’s Covid Zero strategy hurts consumption.
West Texas Intermediate sank below US$86 a barrel, after erasing a gain driven by the Organization of Petroleum Exporting Countries and its allies decision on Monday to pare output. Reflecting the softness, Saudi Arabia cut prices for customers in Asia and Europe for next month’s shipments.
An additional headwind for commodities including crude came from the dollar’s surge to an all-time high on Wednesday, according to a Bloomberg gauge. The currency’s ascent makes oil more expensive for buyers outside the US.
Crude has made a weak start to September, extending a run of three monthly losses that was the worst streak in more than two years. With central banks jacking up rates to quell inflation, investors are concerned economies may be tipped into recession. OPEC+ leader Saudi Arabia said this week it’s ready to manage the market proactively, raising the possibility of more supply cuts.
In China, the world’s biggest oil importer, strict anti-virus curbs are damping demand. Among locations facing curbs, Chengdu in Sichuan has extended a stay-at-home order for its 21 million residents, while the capital Beijing intensified efforts after discovering new cases and the southern technology hub of Shenzhen continues to be subject to movement controls.
Widely-watched oil market time spreads have been volatile. Brent’s prompt spread – the difference between its nearest two contracts – was at 85 US cents a barrel in a backwardation , compared with US$1.34 at the start of the week.