By Peter Nurse
Investing.com -- Oil prices weakened Thursday on fears recession, prolonged Covid-19 lockdowns in China and war in eastern Europe will severely hit global demand.
By 9:10 AM ET (1310 GMT), U.S. crude futures traded 0.6% lower at $105.11 a barrel, while the Brent contract fell 1% to $106.44 a barrel.
Oil prices are under pressure this week amid worries that rising interest rates to combat inflation will severely curtail global economic growth, potentially plunging some regions into recession.
Gross domestic product data, released earlier Thursday, showed the British economy grew less than expected in the first quarter, by 0.8%, with preliminary data suggesting that it actually declined in March by 0.1%.
The U.K. is the first of the G7 countries to release its first quarter GDP data, and offers a worrying guide for the numbers from other countries in the days ahead.
Prolonged COVID-19 lockdowns in the world's top crude importer, China, as well as the strongest U.S. dollar in two decades have also impacted the market.
With this in mind, the Organization of Petroleum Exporting Countries cut its forecast for world oil demand this year in its monthly report for May.
The group of top producers now expects global demand to grow by an average of only 3.4 million barrels a day this year, down from a prior estimate of 3.7 million b/d. That masks a dramatic slowdown in growth between the first and the second quarters of this year - while first-quarter demand was up 5.2 million b/d, demand growth is expected to fall to 2.8 million b/d in the current quarter.
The International Energy Agency also released its monthly report earlier Thursday, and while the Paris-based group rowed back on its previous claim that lower output from sanctions-hit Russia could result in a possible "global supply shock", it still warned about a hit to demand.
"Soaring pump prices and slowing economic growth are expected to significantly curb the demand recovery through the remainder of the year and into 2023," the IEA said.
"Extended lockdowns across China ... are driving a significant slowdown in the world’s second largest oil consumer," the agency added.
Turning to supply, the European Union has yet to agree on the details of the proposed embargo on Russian oil, with Hungary opposing the ban, and preventing unanimous agreement, because of its dependence on supply from Moscow.
“The Hungarians have said that they would only support the ban if there is an exemption for Russian pipeline oil flows,” analysts at ING wrote in a note. “If we were to see this, it would significantly water down the impact of the ban, given that the Druzhba pipeline flows amount to somewhere in the region of 1MMbbls/d, which is a significant portion of the roughly 2.3MMbbls/d of crude oil that the EU imported from Russia in 2021.”