(Bloomberg) — Oil plunged for a second day, dipping below $70 a barrel in New York as the prospect of a US recession triggered a flight from riskier assets and threatened to curb fuel demand.
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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. Oil futures fell to the lowest since March, when the first tremors of a banking crisis were sending prices into a tailspin. There was renewed anxiety on Wednesday over financial stability in the US as well as signs of a cooling labor market.
“Fears of a wider economic slowdown” are driving the market, Joe DeLaura, senior energy strategist at Rabobank, said in a note. Brent crude, which was trading near $80 a barrel on Tuesday, will be the next to test $70, he said.
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.”
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.
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