Oil prices continued their downward spiral on Wednesday, falling even further after dropping 5% in the previous session.
The drop in prices is attributed to concerns about the health of the US economy, which have been amplified ahead of an expected Federal Reserve interest rate hike later in the day.
Brent crude oil, against which Nigerian oil is priced, declined by $1.99, or 2.6%, reaching $73.33 a barrel. West Texas Intermediate crude (WTI) was not spared either, falling $2.03, or 2.8%, reaching $69.63. Both benchmarks had already recorded their biggest one-day percentage declines since early January.
“The Federal Reserve is expected to deliver another quarter-point increase later today as part of its long-running battle against inflation,” PVM Oil analyst Stephen Brennock said. He added that concerns about the health of the US banking sector and downbeat US jobs data “did nothing to dispel fears that the US economy is barrelling towards a shallow recession”.
Investors are also concerned about the global energy demand as more interest rate hikes could slow economic growth. Meanwhile, data from China over the weekend showed a fall in manufacturing activity unexpectedly.
This fall in demand from China, which is the world’s largest energy consumer and top buyer of crude oil, has also contributed to the drop in oil prices.
Although U.S. crude stockpiles fell for a third week in a row, this has not been enough to counteract the impact of the other factors affecting the market.
Morgan Stanley lowered its forecast for Brent prices to $75 a barrel by year-end, citing “downside risk to Russia’s supply and upside risk to China’s demand.”
The International Monetary Fund has warned about the risks of persistent inflation and global market volatility driven by Western banking-sector woes.
The post-pandemic reopening of China’s economy will be pivotal for Asia, according to the IMF, as it raised its economic forecast for the region on Tuesday.
The official stockpile data from the US Energy Information Administration is due at 10:30 a.m. EDT on Wednesday, which could have an impact on oil prices. However, it remains to be seen if it will be enough to turn the tide in a market that has seen several negative factors affecting it at once.
