Oil prices recover after three-day plunge; demand worries linger
Oil prices rose on Thursday but were unable to claw back the more than 9 per cent decline during the previous three days as demand concerns in major consumers overrode signals that the US may pause its interest rates increases.
Brent futures rose 50 cents, or 0.7 per cent, to $72.83 a barrel by 0639 GMT. Since Friday, however, Brent has dropped more than 9 per cent and earlier on Thursday fell to as low as $71.28.
US West Texas Intermediate (WTI) crude rose 28 cents, or 0.4 per cent, to $68.88 a barrel. WTI dropped almost 11 per cent from Friday to Wednesday’s close and earlier on Thursday fell to as low as $63.64, the lowest since Dec. 2, 2021
“Oil is starting to find some support as all the bad supply and demand news has been priced in,” said Edward Moya, an analyst at OANDA.
Prices have plunged this week amid concerns about the US economy, signs of weak manufacturing growth in China, the world’s largest oil importer, and after the US Federal Reserve raised interest rates to their highest since 2007 on Wednesday, potentially capping economic growth in the near-term.
Still, with some positive growth in the US services sector and expectations that output cuts by major producers that started this month will limit supply, investors and analysts are buying back into the market.
While the Fed raised interest rates by a quarter of a percentage point as expected, it signaled it may pause further increases to give officials time to assess the fallout from recent bank failures and wait for clarity over the dispute over raising the US debt ceiling.
The collapse of the third US bank since March, spurred by their inability to manage rising interest rates, has also weighed overall financial markets.
The Organization of the Petroleum Exporting Countries (OPEC)and allies including Russia, a group known as OPEC+, started voluntary output cuts of around 1.16 million barrels per day at the beginning of this month and those are expected to support the market going forward into the summer peak demand period.
“It seems like OPEC+ will have pressure to finally show they can meet those production cut quotas and possibly be in a position to signal more cuts are coming,” Moya said.
Investors are also awaiting developments from the European Central Bank, which is set to raise interest rates for the seventh meeting in a row on Thursday.
Chinese demand concerns continue to weigh on the market especially after a private sector survey showed on Thursday that factory activity unexpectedly dipped in April due to softer domestic demand.