Oil futures steadied as an expected pause in US rate increases helped ease concerns over crude demand, wiping out an overnight slump that saw prices collapse to the lowest level since December 2021.
(Bloomberg) — Oil futures steadied as an expected pause in US rate increases helped ease concerns over crude demand, wiping out an overnight slump that saw prices collapse to the lowest level since December 2021.
West Texas Intermediate futures were little changed in New York after tanking as much as 7.2% at the start of trading in Asia, where traders returning from a break confronted worries of a looming US recession. Prices found support as the Federal Reserve indicated a pause in its rate tightening cycle, which was seen as easing pressure on demand growth.
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.
“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 in Asia “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 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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