Oil futures steadied after enduring a roller-coaster ride at the start of trading in Asia, collapsing to the lowest level since December 2021 in a chaotic opening spell before erasing losses.
(Bloomberg) — Oil futures steadied after enduring a roller-coaster ride at the start of trading in Asia, collapsing to the lowest level since December 2021 in a chaotic opening spell before erasing losses.
West Texas Intermediate futures initially tanked by as much as 7.2% at the start the session as Chinese traders returned after a break and investors confronted concerns that a looming US recession would hurt demand. The steep drop was pared, then overturned by mid-morning in Asia.
Crude has slumped about 14% this year, showing that a plan by the Organization of Petroleum Exporting Countries and its allies to regain control of the market by cutting output from this month isn’t yet working. The losses have been driven by concerns that global growth is slowing, potentially hurting energy demand.
Inflation and rising interest rate are threatening growth prospects and spending power. The Federal Reserve on Wednesday indicated it may have boosted borrowing costs for the last time as it tries to tame prices while allowing for modest growth. The European Central Bank is poised to slow the pace of rate hikes when it sets policy on Thursday.
“Oil prices recovered after the Fed signaled a pause in rate hikes, removing some of the headwinds for growth,” said Carsten Fritsch, a commodities analyst at Commerzbank AG in Frankfurt. “Prices have dropped this week on recession fears caused by weaker economic data out of China and the US and the risk of further monetary policy tightening. The Fed comments have at least eased the latter concern.”
In the US, a government report Wednesday showed gasoline demand contracting and fuel supplies swelling. Jet fuel demand also dropped, while remaining slightly above year-earlier levels.
Oil has also come under pressure as flows from Russia have proved to be more resilient than expected, despite a vow from Moscow to reduce supplies and a web of Western sanctions imposed after the invasion of Ukraine. Deputy Prime Minister Alexander Novak again affirmed the country’s commitment to announced output cuts.
The sharp selloff at the start of trading “was panic selling again, amplified by algorithmic trading,” said Vandana Hari, founder of consultancy Vanda Insights. Other market watchers flagged the possibilities of fat-finger errors for the initial, sudden slump, or speculators abandoning bullish bets. Analysts Brian Martin and Daniel Hynes at ANZ Group Holdings Ltd. said in a note that bearish sentiment will likely continue to drive oil.
The US crude benchmark’s prompt spread — the difference between its two nearest contracts — has narrowed sharply in recent weeks, signaling that traders expect conditions to loosen. The contracts traded on par with one another on Thursday compared with a peak of 20 cents last week.
–With assistance from Rob Verdonck.
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