The crude oil complex extends last week’s losses into the fresh week during Monday’s morning trading session, with WTI falling back below the key $70/b level, and Brent dropping to $74/b as growing economic concerns and recession fears offset the prospect of tight supplies from OPEC+, SPR lows, and a weaker dollar.
Both crude oil prices lost nearly 2% last week, sinking for a fourth straight week to levels not seen since December 2021. They are also trading almost 45% lower than 2022’s peaks of $140/b hit a few days after the Russian invasion of Ukraine on February 24, 2022.
WTI crude oil, Weekly chart
The surprised OPEC+’s 1.5 million barrels per day crude oil production cut due in May, the prospects of China’s reopening after the Covid era, and the 40-year low in the U.S. crude oil SPR Inventories, and the falling dollar have failed to reverse the recent downward momentum on the crude oil prices.
Energy traders have become sellers of the growth-sensitive crude oil given the uncertainties around global economic growth, the U.S. regional banking turmoil, and the weaker-than-expected rebound in the Chinese economy after the pandemic which has deteriorated the oil demand growth outlook for the rest of the year.
Not even the fall of the U.S. dollar to 12-month lows against major peers due to the prospects for a less hawkish Federal Reserve and the soured U.S. economic outlook has given any support to the dollar-denominated crude oil prices, as investors have been worrying about the demand-led issues.
What weighs on the oil prices now, is the sluggish demand outlook as China’s economic reopening progress faded. Chinese imports, inflation, and manufacturing activity all shrank in April, indicating that a post-COVID rebound was running out of steam, deteriorating the demand growth outlook for petroleum products.
On the flip side, the energy market looks on the tightening supply side as the OPEC+ members will voluntarily cut output further by around 1.16 million barrels per day, bringing the total volume of cuts to 3.66 million bpd.
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