On Tuesday, Saudi Arabia cut oil prices for customers in Asia and Europe as coronavirus lockdowns and sagging economies cool energy demand in the two regions. Image Credit: AFP

Dubai: Oil tumbled to the lowest since January as a dollar surge and global demand concerns weigh on prices despite the threat of disruption to Russian supplies.

US benchmark West Texas Intermediate sank below $85 while the global Brent benchmark fell below $90. A dollar gauge reached an all-time high on Wednesday, offering a macro headwind at a time when the oil market is grappling with potential slowing demand in China.

With central banks jacking up rates to quell inflation, investors are concerned economies may be tipped into recession. In China, strict virus curbs are damping demand, with major regions from Chengdu to Shenzhen extending lockdowns or adopting movement controls.

Crude prices have erased a gain driven by a decision from the Organization of Petroleum Exporting Countries and its allies on Monday to pare output. Still, reflecting the market softness, Riyadh also reduced prices for customers in Asia and Europe for next month’s shipments.

“Having priced for the OPEC+ output cut with a short-lived up-move, oil prices continue to struggle with the weaker demand outlook story,” said Yeap Jun Rong, market strategist at IG Asia Pte. “Headlines of China’s virus restrictions renewed the downward bias over the demand outlook, with an added headwind for oil prices coming from further strength in the US dollar.”

Oil’s retreat will help to ease some of the inflationary pressures coursing through the global economy by cooling product prices, including for gasoline. US retail pump prices for the key motor fuel have dropped for more than 80 days to the lowest since March, according to data from auto club AAA.

Widely-watched oil market time spreads have been volatile. Brent’s prompt spread - the difference between its nearest two contracts - was at 78 cents a barrel in a backwardation , compared with $1.34 at the start of the week.