Oil Dips as Traders Worry Over US Economy

By Adedapo Adesanya

Oil plunged to a five-week low on Tuesday on concerns about the US economy, with Brent futures falling by $3.99 or 5.0 per cent to $75.32 a barrel and the US West Texas Intermediate crude (WTI) declining by $4.00 or 5.3 per cent to $71.66 per barrel.

The market reaction came as US politicians discussed ways to avoid a debt default, and investors prepared for more rate hikes this week.

President Joe Biden will not negotiate the debt ceiling during his meeting with four top congressional leaders on May 9 but will discuss starting a separate budget process, the White House said.

This is after the US Treasury warned that the US government could run short of cash to pay its bills as soon as June 1.

Also, US job openings fell for a third straight month in March, and layoffs increased to the highest level in more than two years.

This suggested some softening in the labour market that could aid the US Federal Reserve’s fight against inflation.

Investors will look for market direction from expected interest rate hikes by central banks still fighting inflation.

Market analysts warned that more hikes could slow economic growth and dent energy demand.

The US Federal Reserve is expected to increase interest rates by another 25 basis points on Wednesday.

The European Central Bank (ECB) is also expected to raise rates at its regular policy meeting on Thursday.

China, the world’s top crude importer, recorded a drop in manufacturing activity in April. That was the first contraction in the manufacturing purchasing managers’ index since December.

The market also overlooked a drop in US crude inventories, which fell this week by 3.939 million barrels, the American Petroleum Institute (API) data showed on Tuesday, beating analysts’ expectations of a 1 million barrel draw.

The total number of barrels of crude oil gained so far this year is still more than 34 million barrels.

On the supply side of the market, the Organization of the Petroleum Exporting Countries (OPEC) output fell in April as sanctioned countries Russia and Iran continued to find outlets for their crude.