Oil falls on demand fears, bleaker economic outlook

Also weighing on oil prices was a rise in U.S. crude inventories in the latest week, indicating weak demand.

Oil prices fell by over 2% on Thursday after a rise in U.S. crude stockpiles signalled waning demand, and concerns about the economic outlook drove a broader sell-off in global equities.

Brent crude futures declined by $2, or 2.2%, to $88.13 a barrel at 1238 GMT. U.S. West Texas Intermediate crude futures slid by $2.26, or 2.7%, to $83.13 a barrel.

The benchmark oil contract settled nearly 2% higher on Wednesday. It retreated after the Wall Street Journal reported that Israel has agreed to delay an expected invasion of Gaza until U.S. air defence systems can be deployed in the region.

Fears of a spillover in the conflict, which could embroil Iran and its allies in the region, have supported oil prices in recent weeks, but nervousness is also making investors steer clear of risky assets.

"We’re seeing broad risk-aversion in the markets with economic concerns appearing to be a key driver of that," OANDA analyst Craig Erlam said.

U.S. Treasury yields headed back towards 5% on Thursday, dragging shares around the world to multi-month lows.

Additionally, the U.S. economy grew at its fastest pace in nearly two years in the third quarter, raising expectations that the Federal Reserve will keep interest rates high for longer.

Also weighing on oil prices was a rise in U.S. crude inventories in the latest week, indicating weak demand.

Inventories climbed by 1.4 million barrels to 421.1 million barrels, according to the Energy Information Administration, exceeding a 240,000-barrel gain expected by analysts from a Reuters poll.

Refinery crude runs in the U.S. fell by 207,000 barrels per day, while refinery utilisation rates also edged lower by 0.5 percentage point to 85.6% of total capacity, EIA data showed.

"Looks like with higher U.S. net-imports and refinery runs still lower, there could be another build next week," UBS analyst Giovanni Staunovo said.

Macroeconomic concerns weighed on the outlook for oil demand after a surprise downturn this month in eurozone business activity data.

"Though with no clear signs the war will spiral, attention is returning to volatile swings in the U.S. bond market and the broader fragile state of the world economy, that is unsettling investors," MUFG analyst Ehsan Khoman said.

The European Central Bank left interest rates unchanged as expected on Thursday, snapping an unprecedented streak of ten consecutive rate hikes, and maintained its guidance which implies a steady policy ahead.