Oil falls near to 2022 lows due to economic concerns, easing supply

Oil fell on Wednesday, with Brent crude nearing its lowest level this year, weighed down by concerns about the economy and fading fears that a Western cap on Russian oil prices would drastically reduce supply.

Warnings from major US banks about a possible recession next year knocked on the currency. A rising dollar raises the price of oil for holders of foreign currencies and dampens desire for risk assets.

By 1020 GMT, Brent crude had fallen $1.05, or 1.3%, to $78.30 per barrel. It had previously reached a low of $77.74, the lowest since January 3. Crude oil in the United States fell $1.24, or 1.7%, to $73.01 a barrel, the lowest since late December.

"There's still a lot of uncertainty in the markets today," said Claudio Galimberti, senior vice president at Rystad Energy, adding that oil production in Russia may not fall as much as previously anticipated.

Brent fell below $80 for the second time in 2022 on Tuesday, reversing the year's gains that had taken prices close to an all-time high of $147 in March when Russia invaded Ukraine.

Fears that the Russian crude price ceiling would produce a supply shock were fading. According to the Vedomosti daily on Wednesday, Russia is exploring tactics such as prohibiting oil sales to some countries in order to resist the cap imposed by Western powers.

"The geopolitical risk premium has almost vanished, but inflation fears have not," said PVM, an oil broker. "Clearly, investors are unconcerned about any prospective supply constraint caused by the price cap and the EU ban on Russian oil sales."

Prices have received some support from expectations of a revival in Chinese demand.

On Wednesday, China unveiled the most significant modifications to its anti-COVID policy since the pandemic began, lifting measures that slowed the virus's spread but hampered the world's second largest economy and caused protests.

The American Petroleum Institute's report on Tuesday, according to market sources, showed that oil stocks declined by roughly 6.4 million barrels.

The latest U.S. supply data from the Energy Information Administration, which is coming at 1530 GMT, will be scrutinized to see if it confirms the huge fall in crude stocks.