Oil headed for a punishing weekly loss on increasing evidence that a global economic slowdown is spurring demand destruction, with prices collapsing to the lowest level in six months as key time spreads contract.
West Texas Intermediate traded above $89 a barrel in Asia, with the US benchmark down more than 9pc this week. Official data showed US gasoline consumption has softened while crude stockpiles rose. The slump came even as Saudi Arabia has boosted prices, and OPEC+ warned of scant spare capacity.
While oil markets remain in backwardation, a bullish pricing pattern, widely watched differentials have narrowed sharply, signaling an easing of tightness. Brent's prompt spread -- the gap between its two nearest contracts -- was $1.62 a barrel in backwardation, down from more than $6 a week ago.
After surging in the first five months of the year crude's rally has been thrown into reverse, with losses deepening this month after falls in June and July. The sell-off, which has wiped out gains triggered by Russia's invasion of Ukraine, will ease the inflationary pressures coursing through the global economy that have spurred central banks including the Federal Reserve to hike rates.
"The market is still struggling on the back of a deteriorating demand picture in the US, with pressure on its refining capacity easing considerably," said Stephen Innes, managing partner at SPI Asset Management.
The shift to much tighter monetary policy has stoked concern among investors that growth will slow, imperiling the outlook for energy usage. The Bank of England warned that the UK is heading for more than a year of recession as it raised borrowing costs, while in the US, a procession of Federal Reserve speakers pledged to continue an aggressive fight to cool inflation.
China has also shown signs of weakness, clouding the outlook for crude consumption in the top importer. Recent data showed factory activity shrank, while China Beige Book International warned the economy was deteriorating.
This week's slump was driven in part by Libya bringing production back online after a period of upheaval, potentially enabling the OPEC member's exports to stabilize at more than 1 million barrels a day and easing market tightness.
On Wednesday, the Organization of Petroleum Exporting Countries and its allies including Russia agreed to a minuscule rise in collective supply for September, while warning that its spare capacity was extremely limited. Saudi Arabia, the group's de facto leader, raised oil prices for buyers in Asia to a record.