Oil prices extended their losses on Tuesday as concerns about a possible global recession continued to weigh on crude demand ahead of the Fed’s policy decision. At around 5:45 p.m., a barrel of Brent for North Sea, for delivery in July, lost 4.39%, to $75.82. Its American equivalent, a barrel of West Texas Intermediate (WTI), for delivery in June, fell 4.57% to $72.20. The two benchmark crudes thus moved to their lowest levels since the end of March.
The market “is also questioning China’s ability to drive economic growth and oil prices,” said Louise Dickson, an analyst at Rystad Energy, noting that “uncertainty hangs over the pace of recovery in Chinese demand.” Factory activity growth in China weakened in April, official data showed, on weaker international demand and a difficult post-COVID recovery.
Waiting for the Fed and the ECB
The Purchasing Managers’ Activity Index (PMI), a reflection of the health of the industrial world, has contracted. “These numbers have raised concerns among investors as they have affected the growth outlook for the world’s second largest economy and the outlook for global demand,” said Ricardo Evangelista of ActivTrades.
The market thus awaits the Fed’s monetary policy decision on Wednesday but also that of the European Central Bank (ECB) on Thursday. Tighter monetary policy could weigh on the economy by raising the cost of credit for households and businesses. This accentuates the risks of recession, and therefore of falling demand for oil.
For Louise Dickson, the slowdown in the US economy is also a “potential harbinger (…) that rising borrowing costs and prices could slow economic growth.” “Gross domestic product (GDP) growth and oil demand are strongly correlated,” she explains.
Source: BFM TV
