Oil prices plunge 5% to a five-week low as investors brace for rate hikes, fearing reduced energy demand. Concerns over diesel demand and manufacturing activity in China add to negative sentiment.
Oil prices continued their downward trend on Wednesday, extending losses after a significant slump of approximately 5% in the previous session. Brent futures fell 13 cents, or 0.2%, to $75.19 a barrel, while West Texas Intermediate crude (WTI) also dropped 13 cents, or 0.2%, to $71.53. These prices marked the lowest levels since March 24 and were accompanied by the largest one-day percentage declines since early January.
Investors are growing increasingly cautious as they prepare for more rate hikes scheduled for this week. The U.S. Federal Reserve is expected to raise interest rates by an additional 25 basis points, aiming to combat inflation. Similarly, the European Central Bank is also anticipated to increase rates at its regular policy meeting on Thursday. However, these rate hikes have raised concerns about the potential negative impact on economic growth and energy demand.
Investor concerns grow as oil prices plummet
Furthermore, worries about diesel demand have contributed to the downward pressure on oil prices. U.S. heating oil futures have dropped to their lowest level since December 2021. This decline in demand for diesel, a key indicator of economic activity, has raised concerns about the overall strength of the economy and its implications for energy consumption.
Adding to the negative sentiment, China, the world’s largest energy consumer and top buyer of crude oil, recently reported an unexpected fall in manufacturing activity in April. This data has further intensified concerns about energy demand, as the performance of the Chinese economy has a significant impact on global energy markets.
The reopening of China’s economy will play a crucial role in shaping the overall economic landscape of Asia. The International Monetary Fund (IMF) recently raised its economic forecast for the region, emphasising the importance of China’s recovery. However, the IMF also highlighted the risks associated with persistent inflation and global market volatility driven by issues in Western banking sectors.
On a positive note, U.S. crude stockpiles have fallen for the third consecutive week, a trend not seen since December. Last week, stockpiles reportedly decreased by approximately 3.9 million barrels, according to market sources citing American Petroleum Institute figures. The official data from the U.S. Energy Information Administration (EIA) is expected to be released at 10:30 a.m. EDT on Wednesday.
Impending rate hikes spark fears of decreased energy Demand
The ongoing dynamics in oil prices reflect a complex interplay of various factors. The anticipation of rate hikes, concerns about diesel demand, and economic indicators from significant economies such as China and the United States all contribute to the market sentiment surrounding oil prices.
Looking ahead, market participants will closely monitor the decisions made by central banks, as well as economic indicators and geopolitical developments, to gauge the future direction of oil prices. The oil industry remains cautious yet resilient, adapting to the changing dynamics and seeking opportunities amidst the challenging market conditions.
As the day progresses, traders and analysts will assess the official stockpile data from the EIA, which could provide further insights into the supply-demand dynamics of the oil market.