(Bloomberg) — Oil plunged for a second day, dropping below $70 a barrel in New York as the prospect of a US recession threatened to curb fuel demand.
Most Read from Bloomberg
Just days after OPEC+ began cutting production in an effort to stabilize crude markets, there was little indication that the group was having any success, and also questions about whether Russia was really joining the curbs. Oil futures fell to the lowest since March amid renewed anxiety over the financial stability of regional US lenders as well as signs of a cooling labor market.
“The oil price drop is reminiscent of the decline in mid-March when banking turmoil first started,” said Jens Pedersen, director of oil and commodities research at Danske Bank A/S. The slump “suggests the market has gotten concerned about the outlook for demand.”
Crude has had a rough ride in 2023 despite China’s reemergence from its restrictive Covid Zero policy and sizable reductions in supply by the Organization of Petroleum Exporting Countries and its allies. Those surprise cutbacks, announced just a month ago, were supposed to seize back control of the market from bearish speculators. Instead, a brief rally in April has fizzled.
“With short sellers back in control, prices may once again overshoot to the downside,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S. “The Fed is expected to hike once again later today, and it continues to weigh on the demand outlook.”
The US Federal Reserve is predicted to deliver a 25 basis-point interest-rate increase on Wednesday and signal a pause in its aggressive campaign of hikes. Despite the rescue of First Republic Bank, the US regional banking crisis is far from resolved, former Federal Reserve Bank of Dallas President Robert Kaplan said in a Bloomberg Television interview.
In the US, data from the industry-funded American Petroleum Institute offered a mixed picture about the current state of supply and demand. Nationwide crude inventories contracted by almost 4 million barrels last week and distillate inventories also dropped, but there was a buildup of crude at the key Cushing, Oklahoma hub, according to people familiar with the figures. The official government data comes later on Wednesday.
In Russia, meanwhile, there was no sign of a sustained drop in crude flows out of the country, despite its pledge to cut production by 500,000 barrels a day. Exports jumped back above 4 million barrels a day in the week to April 28, a level surpassed only once since Moscow’s troops invaded Ukraine in February 2022, according to tanker-tracking data compiled by Bloomberg.
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.
