Oil steadied after growing concerns over weakening demand sparked the steepest one-day plunge in more than a year.
West Texas Intermediate traded near $84 a barrel after sinking 5.6% on Wednesday. The drop came after official US data showed the weakest seasonal demand for gasoline in 25 years and a small build in crude holdings at the Cushing, Oklahoma, storage hub. Adding to the gloom, a private survey showed US companies added the fewest number of jobs since the start of 2021.
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.
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, crude’s drop 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 fall will be a welcome boost for major buyers. Earlier this week, India’s Oil Minister Hardeep Puri said that prices need to drop to levels of about $80 a barrel to be good for consumers.
On Wednesday, Riyadh and Moscow — the most influential OPEC+ members — said they would stick with supply curbs, which total about 1.3 million barrels a day. The restrictions have helped to drain inventories, with US holdings at the Cushing site nearing levels regarded as the minimum needed for operations.
After the midweek drop, key metrics continue to point to tight conditions. WTI’s prompt spread — the difference between its two nearest contracts — was $1.69 a barrel in backwardation, a bullish pattern. While that’s down from more than $2 a barrel last week, it compares with 68 cents a month ago.
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Author: Jake Lloyd-Smith