Oil prices took a dip on Thursday as the possibility of a recession in the United States, the world’s largest oil consumer, overshadowed worries about tight supply.
Brent crude oil, slipped 55 cents or 0.63%, to $86.78 a barrel while U.S. West Texas Intermediate (WTI) dropped 46 cents or 0.55%, to $82.80.
Both Brent and WTI had gained 2% on Wednesday to their highest levels in over a month as falling U.S. inflation sparked optimism that the U.S. Federal Reserve would cease raising interest rates.
However, minutes from the Fed’s latest policy meeting indicated that banking sector strain could plunge the economy into a recession, weakening U.S. oil demand.
In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC) highlighted downside risks to summer oil demand but maintained its forecast for global oil demand growth in 2023.
Nevertheless, the market is closely monitoring indicators of economic growth, which oil broker PVM’s Tamas Varga described as frail.
“The inflationary pressure could easily become elevated again,” Varga said. The market is still recovering from OPEC+’s unexpected decision to cut output further. The International Energy Agency’s executive director anticipates that the move will tighten supply in the second half of the year and push oil prices up.
However, the International Monetary Fund warned on Tuesday about the risks this presents to global economic growth. For every 10% increase in the oil price, IMF models show a 0.1 percentage point decline in growth and a 0.3 percentage point increase in inflation, according to IMF chief economist Pierre-Olivier Gourinchas.
Despite a small increase in U.S. crude oil stocks on Wednesday, the market was unfazed, attributing it in part to a release of oil from the U.S. strategic reserve and reduced exports at the beginning of the month. On Wednesday, U.S. Energy Secretary Jennifer Granholm stated that the Biden administration plans to replenish the U.S. Strategic Petroleum Reserve soon and hopes to do so at lower oil prices.
