(Bloomberg) – Oil tumbled for a second day, falling below $70 a barrel in New York, as the prospect of a US recession prompted a flight from riskier assets and threatened to curb fuel demand.
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Just days after OPEC+ began cutting production to stabilize crude markets, there was little sign of the group having any success. Oil futures fell to their lowest level since March, as the first tremors of a banking crisis sent prices into a tailspin. On Wednesday there were renewed concerns about financial stability in the US and signs of a slowdown in the labor market.
“Fears of a broader economic slowdown” are driving the market, Joe DeLaura, senior energy strategist at Rabobank, said in a note. Brent crude, which traded at $80 a barrel on Tuesday, will be next to test $70, he said.
Crude oil has had a tough time in 2023, despite China’s rebound from its restrictive Covid-Zero policy and sizeable supply cuts by the Organization of Petroleum Exporting Countries and its allies. Announced just a month ago, these surprise cuts were intended to regain control of the market from bearish speculators. Instead, a brief rally in April fizzled
“If the short sellers regain control, prices could shoot down again,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S. “The Fed is expected to hike again later today and this continues to weigh on the demand outlook.”
In the US, data from the industry-funded American Petroleum Institute offered a mixed picture on the current state of supply and demand. Statewide crude inventories fell nearly 4 million barrels last week and distillate inventories also declined, but there was a buildup of crude at the main hub in Cushing, Oklahoma, according to people familiar with the figures. Official government data comes later on Wednesday.
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In Russia, meanwhile, despite a pledge to cut production by 500,000 barrels a day, there has been no sign of a sustained slowdown in crude flows out of the country. Exports surged back to over 4 million barrels a day in the week ended April 28, a level surpassed only once since Moscow’s troops invaded Ukraine in February 2022, according to tanker tracking data compiled by Bloomberg.
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