Oil is trading at levels not seen in nearly eight months, on concerns over looming recession risks and amid fears that Russia will halt all oil and gas supplies.
Brent crude futures were up 1% at $89.94 a barrel mid-session after falling as low as $87.24 earlier in the session, their lowest level since Jan. 25.
US WTI crude oil futures were up 1.7% at $83.3 a barrel, after falling as low as $81.20, their lowest level since January 12.
“Downside pressures came on fears of lower global demand for oil, due to growing recession risks in Europe, as well as the economic slowdown in China, where oil imports fell 9.4% annually in August. For its part, the closure of the Nord Stream 1 gas pipeline has increased the probability of a recession in the Eurozone, accelerated by the energy crisis,” said Gabriela Siller, director of economic analysis at Banco Base.
Yet the European Union proposed capping Russian gas only hours later, raising the risk of rationing in some of the world’s richest countries this winter.
The barrel gained some support following Russian President Vladimir Putin’s threat on Wednesday to halt oil and gas exports if European buyers impose price caps.
“The halting of the release of the US SPR (Strategic Petroleum Reserve), coupled with the enforcement of an EU embargo on Russian crude, have the makings of a global supply crisis this winter,” said Stephen Brennock, an analyst at PVM.
Expectations of a reduction in US oil inventories also contributed to this situation. Stockpiles are expected to have fallen for the fourth week in a row, with an estimated decline of 733,000 barrels in the week to September 2, according to a preliminary Reuters poll on Tuesday.
Despite looming supply shortages, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, decided to cut production by 100,000 barrels a day in October.
“The energy market has seen a slow return of supply after shutdowns during the COVID-19 pandemic. However, rig counts in the US have been on the rise as high prices spur additional production, which should provide some support to the broader market,” analysts at consultancy Edward Jones said.
Specialists added that with Europe’s gas supplies dwindling, fears of a recession and a prolonged economic slowdown have been heightened. Some relief may be available, however, as both the German and French governments have said that emergency natural gas stocks are above target and on track to reach desired levels well before the start of winter, which it will help warm the country during the winter months if Russia continues to tighten supplies.
With information from Reuters