Oil prices drop as dollar strengthens, demand weakens

Oil prices fell on Thursday after gaining more than $3 in the prior session, with a strong dollar capping oil demand and concerns over the faltering global economic outlook clouding market sentiment.

Brent crude futures fell 91 cents, or 1 percent, to $88.41 per barrel by 0629 GMT, while U.S. crude futures dropped by 80 cents, or 1 percent, to $81.33.

Both benchmarks had rebounded in the prior two sessions, after reaching nine-month lows this week, after a temporary dive in the dollar index and a larger-than-expected drawdown of U.S. fuel inventory raised hopes of a consumer demand recovery.

However, the dollar index trended upward again on Thursday, dampening investor risk appetite and stoking fears of a global recession.

The Bank of England said it was committed to buying as many long-dated government bonds, know as gilts, as needed between Wednesday and Oct. 14 to stabilize its currency after the British government’s budgetary plans announced last week caused the sterling to tumble.

Goldman Sachs cut its 2023 oil price forecast on Tuesday, citing expectations of weaker demand and a stronger U.S. dollar, but said global supply disappointments reinforced its long-term bullish outlook.

In China, the world’s biggest crude oil importer, travel during the upcoming week-long national holiday is set to hit the lowest level in years as Beijing’s persistent zero-COVID rules prompt people to stay at home and economic woes dampen spending.

Citi economists have lowered their China GDP forecast from 5 percent year-on-year growth to 4.6 percent  for the fourth quarter of 2022.

“Stringent zero-COVID measures and a weak property sector continue to cloud growth prospects,” Citi analysts wrote in a note on Wednesday.

On the other side of the world, the European Union proposed a new round of sanctions against Russia over its invasion of Ukraine, including tighter trade restrictions, more individual blacklistings and an oil price cap for third countries.

But the bloc’s 27 member countries will need to overcome their own differences to implement them.