Oil prices near eight-month lows on demand concerns

© Reuters. A view shows the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel

By Ahmad Ghaddar

LONDON (Reuters) -Oil prices edged higher on Thursday, but remained near eight-month lows, as China's extension of COVID-19 lockdown measures exacerbated concerns a slowdown in global economic activity would hit fuel demand.

Brent crude futures were up 32 cents, or 0.4%, to $88.32 per barrel at 1220 GMT, after falling to $87.24 earlier, their lowest since Jan. 25. U.S. crude futures were up 47 cents, or 0.6%, at $82.41 a barrel, after falling to $81.20, their lowest since Jan. 12.

Prices drew some support from Russian President Vladimir Putin's threat to halt oil and gas exports if price caps are imposed by European buyers.

The European Union proposed capping Russian gas prices hours later, raising the risk of rationing in some of the world's richest countries this winter if Moscow carries out its threat. Russia's Gazprom (MCX:GAZP) has already halted flows from the Nord Stream 1 gas pipeline, cutting off a substantial percentage of supply to Europe.

Concerns about the health of the global economy and expectations of falling fuel demand led to sharp oil price falls in the previous session, which extended into early Thursday trading.

Saxo Bank analyst Ole Hansen said the decline was "driven by continued demand worries related to the risk of growth-killing rate hikes from central banks battling runaway inflation and China's continued economic struggle caused by its COVID-zero policy".

China's Chengdu extended a lockdown for a majority of its more than 21 million residents on Thursday to prevent further transmission of COVID-19, while millions more in other parts the country were told to shun travel in upcoming holidays.

Meanwhile, a number of central banks around the world are expected to begin a new round of interest rate hikes to fight inflation.

The European Central Bank raised its key interest rates by an unprecedented 75 basis points on Thursday and signalled further hikes, prioritising the fight against inflation even as the euro zone economy is heading for a likely winter recession.

Elsewhere, reacting to soaring energy prices, Britain's new Prime Minister Liz Truss will on Thursday scrap the country's fracking ban and seek to make more use of its reserves in the North Sea, the Telegraph newspaper reported.

JP Morgan said OPEC+ may need to cut production by 1 million barrels per day (bpd) to "stem the downward momentum in prices and realign physical and paper markets which appear disconnected."

The Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, agreed on Monday to cut their output by 100,000 bpd for October.