Oil prices drop as demand fears dominate

Oil prices slid in early trade on Friday, extending losses from the previous session on fears US interest rates will go higher than previously expected and fresh concerns that Covid outbreaks will dent fuel demand in China.

Brent crude futures dropped by 22 cents, or 0.2 per cent, to $94.45 a barrel at 0025 GMT after falling 1.5 per cent in the previous session. The contract was on track to fall more than 1 per cent for the week.

US West Texas Intermediate (WTI) crude futures fell 27 cents, or 0.3 per cent, to $87.90 a barrel, deepening a 2 per cent loss from the previous session, but on course to end flat for the week.

Fears of a recession in the United States, the world's biggest oil consumer, grew on Thursday after Federal Reserve Chairman Jerome Powell said it was "very premature" to be thinking about pausing interest rate hikes.

"The spectre of further rate hikes dimmed hopes of a pick-up in demand," ANZ Research analysts said in a note.

Adding to the gloom, the Bank of England warned on Thursday that it thinks Britain has entered a recession and the economy might not grow for another two years.

ANZ analysts pointed to signs of weaker demand in Europe and the United States with people driving less and Amazon warning of weaker sales, which could dampen demand for distillate for its deliveries.

Further hurting the outlook, China stuck to its strict Covid-19 curbs as cases rose on Thursday to their highest since August. Investors earlier in the week had thought the world's largest oil importer may be moving toward easing restrictions to boost the economy.

With softer demand in China, Saudi Arabia lowered December official selling prices (OSPs) for its flagship Arab Light crude to Asia by 40 cents to a premium of $5.45 a barrel versus the Oman/Dubai average.

The cut was in line with trade sources' forecasts.