Oil prices slumped on Thursday after two sessions of gains as investors continued to worry about a possible recession in the US and weak oil demand.
Brent crude fell 32 cents, or 0.4%, at 0630 GMT to $87.01 a barrel, while West Texas Intermediate (WTI) slid 22 cents, or 0.3%, to $83.04.
Both gauges rose 2% on Wednesday to their highest level in more than a month, as cooling US inflation data boosted hopes the Federal Reserve will stop raising interest rates.
However, the previous tightening, which drove interest rates to the highest level since 2007, raised concerns that the Fed’s focus on curbing inflation could dampen economic growth and future oil demand in the world’s largest oil user.
Talks about a possible US recession highlighted in recent Fed minutes continue to question the oil demand outlook, supporting the risk of tighter supply conditions.
By the way, the U.S. Consumer Price Index (CPI) climbed 0.1% last month, below economists’ expectations for a 0.2% gain, and down from a 0.4% increase in February, raising expectations the Fed is likely to stop hiking rates after a possible increase in May.
Assessing the possible repercussions of banking stress, Fed staff forecast a “mild recession” later this year.
The rally ended on concerns that a possible recession in the US would weaken demand for crude oil. WTI rallied above $83 a barrel, close to its highest technical limit since last December, prompting a sense of caution among investors.
Markets on Wednesday ignored the small rise in US crude inventories, partly attributed to the congress-mandated release of oil from the US emergency reserve and lower exports earlier in the month.
The Energy Information Administration (EIA) said on Wednesday that crude oil inventories rose 597,000 barrels last week, compared with analysts’ expectation of a 600,000-barrel drop. Meanwhile, gasoline and distillate stocks fell less than expected.
U.S. Energy Secretary Jennifer Granholm said on Wednesday that the Biden administration plans to refill the U.S. Strategic Petroleum Reserve soon and hopes to do so with lower oil prices.
The oil market rose two weeks ago after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, decided to cut production.
Fatih Birol, Executive Director of the International Energy Agency (IEA), said that as a result, the global oil market may see tightness in the second half of 2023 and this will push prices higher.
