NEW YORK: Oil prices sank about 5% to a five-week low on Tuesday (May 2) on concerns about the economy as US politicians discuss ways to avoid a debt default and investors prepare for more rate increases this week.
Brent futures fell US$3.99, or 5.0%, to settle at US$75.32 (RM336.11) a barrel, while West Texas Intermediate crude (WTI) fell US$4.00, or 5.3%, to end at US$71.66 (RM319.78).
That was the lowest close for both benchmarks since March 24 and was also their biggest one-day percentage declines since early January.
Oil prices and Wall Street’s main indices both fell after US Treasury Secretary Janet Yellen said the government could run out of money within a month.
The White House said President Joe Biden would not negotiate over the debt ceiling during his meeting with four top congressional leaders on May 9, but he will discuss starting “a separate budget process”.
US job openings fell for a third straight month in March and layoffs increased to the highest level in more than two years, suggesting some softening in the labor market that could aid the Federal Reserve’s (Fed) fight against inflation.
“The US economy continues to evolve in a manner consistent with a recession commencing later this year,” analysts at Barclays, a bank, said in a note.
“The manufacturing sector is contracting, the consumer is struggling ... there are broadening signs of cracks emerging within the labour market,” Barclays said.
Later this week, investors will look for market direction from expected interest rate increases by central banks still fighting inflation. More hikes could slow economic growth and dent energy demand.
The Fede is expected to increase interest rates by another 25 basis points on Wednesday.
The European Central Bank is also expected to raise rates at its regular policy meeting on Thursday.
“The ... action of central banks in their mission to tame elevated consumer and producer prices ... all cast a rather long shadow of doubt on prospects going forward,” oil broker PVM’s Tamas Varga said.
Concerns about diesel demand in recent months, meanwhile, has pressured US heating oil futures to their lowest level since December 2021.
“Oil basically has weakening prospects from the world’s two largest economies, China and the US., and if the macro backdrop deteriorates momentum selling could easily send prices below the US$70 level,” said Edward Moya, senior market analyst at data and analytics firm Oanda.
Over the weekend, data from China, the world’s top crude importer, showed manufacturing activity fell unexpectedly in April. That was the first contraction in the manufacturing purchasing managers' index since December.
On the supply side, Iran’s oil production surpassed 3 million barrels per day (bpd), its oil minister said. The Organization of the Petroleum Exporting Countries (Opec) member, which has been under US sanctions since 2018, pumped 2.4 million bpd on average in 2021.
The market shrugged off news that Opec’soutput fell in April, as sanctioned countries Russia and Iran continued to find outlets for their crude.
Meanwhile, US crude stockpiles were forecast to have drawn down for a third week in a row for the first time since December, falling some 1.1 million barrels last week, according to analysts in a Reuters poll. – Reuters
Source: The Sun Daily
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