Oil prices are expected to settle the week at a multi-month low due to recession worries.

Due to market concerns about a probable recession and a decline in gasoline use, oil prices dropped on Friday and were nearly at their lowest levels since February.

Oil prices

LONDON, Aug 5; 5:09 PM (Reuters) - Oil prices fell on Friday and were close to their lowest levels since February as the market strikes over a potential recession and a drop in gasoline consumption. By 11:20 GMT, Brent crude had decreased by 50 cents, or 0.5 percent, to $93.62 per barrel. U.S. West Texas Intermediate crude was trading at $87.88, down 66 cents or 0.8 percent. Prices have been under pressure this week as investors worry about how inflation will affect demand and economic development, but indicators of tight supply have helped to keep prices in check.

Concerns about recession have grown since the Bank of England issued a warning on Thursday of a prolonged downturn after raising interest rates by the greatest since 1995. "If commodities are not pricing in an impending economic crisis, they may be preparing for a period of stagflation, in which inflation rises but unemployment remains high," said Tina Teng, an analyst at CMC Markets.

Despite relatively tight supply, prices are falling as evidenced by persistent futures prices, a market structure whereby current prices are greater than those in subsequent months. Craig Erlam, a senior market analyst at Oanda in London, observed that "clearly, everyone is taking the possibility of recession significantly more seriously since we're still seeing a very tight market and producers with no capacity to change that."

One of the smallest increases since such restrictions were implemented in 1982, according to OPEC data, the OPEC+ producing group decided this week to enhance its oil output objective by 100,000 barrels per day (bpd) in September. With European Union restrictions prohibiting seaborne imports of Russian crude and oil products slated to go into force on December 5, supply issues are anticipated to increase closer to winter.

The crucial question is whether Middle Eastern producers will reroute their barrels to Europe to cover the gap left by the EU's suspension on seaborne Russian imports, according to RBC analyst Michael Tran. "One of the most important things to watch for the rest of the year will be how this Russian oil sanctions program shakes out."



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