Crude oil slumps; falls to lowest levels since late March

Crude oil slumps; falls to lowest levels since late March


By Peter Nurse — Oil prices retreated Thursday, falling to their lowest level in three weeks on concerns a weakening U.S. economy could hit demand growth in the second half of this year.

By 09:15 ET (13:15 GMT), U.S. crude futures traded 1.9% lower at $77.75 a barrel, while the Brent contract fell 1.9% to $81.56 a barrel. 

Both benchmarks have fallen to their lowest levels since late March, just before the surprise OPEC+ production cut announcement.

This fall in crude prices is a result of increased worries about global demand, particularly on signs that the U.S. economy, the largest consumer of oil in the world, is slowing down amid higher interest rates.

The Fed’s Beige Book, a periodic look at conditions in its regional districts, suggested that the U.S. economy stalled in recent weeks, with hiring and inflation slowing and access to credit narrowing.

This marked a deterioration in sentiment from the March report, published just before the banking crisis erupted, which showed a resilient economy.

Adding to these concerns that the U.S. economy is slipping into recession is the likelihood of more monetary tightening by the Federal Reserve, which can help the dollar.

A strengthening greenback makes oil, which is denominated in dollars, more expensive for holders of other currencies.

On the supply side, flows from northern Iraq via Turkey remain halted, which is keeping around 450,000 barrels a day from the market.

“The Iraqi prime minister had said that flows could resume this week, after coming to an agreement with the Kurdish regional government,” said analysts at ING, via a note. “However, Iraq still needs to reach a settlement with Turkey before these flows can restart.”

This negative sentiment has overshadowed a broadly bullish report from the Energy Information Administration, which showed U.S. crude stockpiles fell 4.58 million barrels last week, while refineries operated above 91% of capacity for the first time since December.

That said, “the weakness seen in refinery margins is not a great demand signal and this weakness could start to see refiners trimming run rates,” ING added.


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