Oil hits its lowest level since January due to creeping economic uncertainty

NEW YORK (Reuters) – Global oil prices fell to their lowest since January on Tuesday, continuing a downward trend, as rising concerns about global demand offset any upward effects from a European Union-led price ceiling on Russian oil sales.

Brent crude futures for February delivery fell $2.35, or 2.8%, to $80.33 a barrel at 11:38 AM EST. [1638 GMT]It is the lowest level since January 10. West Texas Intermediate crude fell $2.01, or 2.6%, to $74.92.

“In this market, the sentiment is more negative,” said Eli Tesfaye, senior market analyst at RJO Futures. “We could be looking at $60 a barrel WTI the way things are going. I think the 80s will be a new high, and I would be very surprised to see any higher than that.”

Service sector activity in China recently hit a six-month low, and European economies have slowed due to rising energy costs and higher interest rates.

Crude oil futures on Monday posted their biggest daily drop in two weeks after US services industry data indicated a strength in the US economy and led expectations of higher interest rates than most recent expectations.

The US dollar index fell on Tuesday, but was still supported by bets on rising interest rates, after the largest rise in two weeks on Monday.

A stronger dollar makes dollar-denominated oil more expensive for buyers who hold other currencies, reducing demand.

In China, more cities are easing restrictions related to COVID-19, which has raised expectations of increased demand in the world’s largest oil importer, although it was not enough to rally futures contracts.

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The market was weighing the production impact of the $60 per barrel cap on Russian crude imposed by the Group of Seven, the European Union and Australia, which contributed to the market’s volatility. So far, there has been “a lack of impact on Russian flows,” said Matt Smith, chief oil analyst at Kpler.

“Russian exports and offshore production are not declining, along with fears of a price increase – crude oil is drifting in the direction of risk off in broader markets,” Smith said.

Russia has said it will not sell oil to anyone who adheres to the price ceiling. Russia’s production of condensed oil and gas in January-November rose 2.2% from a year earlier to 488 million tons, according to Deputy Prime Minister Alexander Novak, who expects a slight drop in production after the latest sanctions.

(Covering) By Shariq Khan (Additional reporting) By Rowena Edwards Editing by Barbara Lewis and Mark Potter

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