Oil plunges below US$70 a barrel in New York on U.S. recession fears
Oil plunged for a second day, dipping below US$70 a barrel on May 3 in New York as the prospect of a recession in the United States triggered a flight from riskier assets and threatened to curb fuel demand.
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Just days after the Organization of Petroleum Exporting Countries and its allies (OPEC+) began cutting production in an effort to stabilize crude markets, there was little indication that the group was having any success.
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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 May 3 over financial stability in the U.S. as well as signs of a cooling labour 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 US$80 a barrel on May 2, will be the next to test US$70, he said.
Crude has had a rough ride in 2023 despite China’s re-emergence from its restrictive COVID Zero policy and sizable reductions in supply by the OPEC+. 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.
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“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 U.S., 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 four million barrels last week and distillate inventories also dropped, but there was a buildup of crude at the key Cushing, Okla., hub, according to people familiar with the figures. The official government data comes later on May 3.
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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 four 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.
