Oil extended its sharp decline on concerns that a slowdown in global growth will erode consumption.
(Bloomberg) — Oil extended its sharp decline on concerns that a slowdown in global growth will erode consumption.
The global Brent benchmark fell below $85 for the first time since late August, while West Texas Intermediate slid below $84 after slumping the most since September last year on Wednesday. Crude’s drop followed a plunge in gasoline after US data showed stockpiles surged in the US and demand fell.
Oil also tumbled through key technical levels Wednesday with both Brent and WTI plunging below their 50-day moving average for the first time since July. Market volatility also surged during the rout, bolstering options trading.
After rallying strongly in the third quarter — with the US benchmark topping $95 a barrel near the end of September — crude’s upsurge has faltered. While the gains had fueled speculation that a return to $100 oil was on the cards, others remained skeptical, with notable bear Citigroup Inc. making the case that prices were on course to reverse as the market returned to a surplus.
Oil’s sharp retreat has come against a backdrop of rising worries about elevated interest rates and the global economy that has rattled equity and bond markets in recent weeks. If sustained, it will help to cool inflationary pressures as central bankers including those at the Federal Reserve debate whether they’ve hiked borrowing costs enough. Monthly US jobs data Friday will be scrutinized for clues on the economy’s health.
“The current rates environment along with the USD strength has only provided stronger headwinds to the market,” said Warren Patterson, head of commodities strategy at ING.
Crude’s tumble came despite announcements from Saudi Arabia and Russia that voluntary production cuts would remain in place through the end of the year. In addition, an OPEC+ committee recommended no change to collective curbs.
The rally in oil has reversed as “bond markets have been signaling economic weakness, and US gasoline demand continues to lag,” Citi analysts including Francesco Martoccia and Ed Morse said in a note. “Collapsing prices likely informed the OPEC+ decision to stay the course on output cuts to year-end.”
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