WTI Falls Under $90, Hits Lowest Since Before Russia’s Invasion of Ukraine on Gloomy Outlook

Key Points

• WTI fell to its lowest level since before Russias February invasion of Ukraine under $90 per barrel on Thursday.

• Concerns about a weakening global economy after gloomy BoE forecasts and bearish US inventory figures weighed on sentiment.

• Gold broke out to fresh near one-month highs in the $1,790s, boosted amid growth concerns and the weaker buck.

WTI Falls to Lowest Since February on Demand Outlook Woes

US oil prices endured another sharp decline on Thursday, dropping to their lowest levels since prior to Russias invasion of Ukraine in February, with technicians warnings of further declines to come amid an increasingly gloomy outlook for the global economy. Front-month WTI futures contracts slid to around the $88 per barrel mark, their lowest since early February, with technicians talking about how a test of October/November 2021 highs in the $85 area looks likely.

The Bank of England raised rates by 50 bps on Thursday to 1.75% and promised more tightening ahead, encapsulating the push by major global central banks including the Fed and ECB to lift interest rates in order to prevent elevated inflation from becoming embedded. But higher interest rates at a time when the global economy is already slowing further adds to downside economic risks.

The Bank of England also released new economic forecasts, in which it now sees the UK economy falling into recession by Q4 2022 and not returning to growth until 2024. The pessimistic outlook appeared to unnerve crude oil traders, who have increasingly been moving to price in a rising risk of recession in major economies like the UK, Eurozone and US.

Traders said that US oil prices were also still feeling the negative effects of a bearish US crude oil inventory report released on Wednesday, which triggered worries about US demand in the midst of what would normally be peak driving season. Others said selling pressure was exaccerbated by reports that Saudi Arabia and the UAE, the last OPEC+ producers with any spare capacity to actually substantially lift oil output, are prepared to deliver a “significant increase” to output should the world face a supply crisis this winter.

Gold Breaks Higher on Growth Concerns, Buck/Yield Weakness

Despite concerns about the worsening global demand outlook, industrial metals mostly managed to move higher on Thursday, boosted by the weaker US dollar. Copper was last up about 0.1%, but still just below $3.50.

Gold prices, meanwhile, enjoyed a substantial near $30 bounce into the mid-$1,790s from earlier session lows around $1,763, boosted by an uptick in global growth fears post-BoE, the weaker buck and a drop in US bond yields. That was its highest levels since 5 July and marked a break above the important $1,785 resistance level.

Analysts warned that metals markets still face the risk of a significant chop on Friday depending on the message US jobs data for July sends about the health of the US economy and labor market, and based on how markets interpret this as impacting the Fed policy outlook. Signs of a moderation in labor market conditions (i.e. slower job gains) and slower wage growth could see Fed tightening bets pared and metals receive a boost.