Meghalaya News Daily

Oil Drops 2% As Economic Problems and a Stronger Dollar Take Effect


After two days of gains, oil fell 2% on Tuesday as growing worries about an economic slowdown and a stronger currency overcame expectations for rising Chinese demand and fewer U.S. crude supplies.

To end the day at $80.77 a barrel, Brent oil dropped by $1.96, or 2.4 percent. To close at $77.07, U.S. West Texas Intermediate crude fell $1.69, or 2.2 percent. Both contracts increased by more than 1% on Monday.

The day after regional lender First Republic announced a deposit flight of more than $100 billion, sparking concerns of a possible financial crisis, U.S. consumer sentiment fell to a nine-month low, fueling anxieties of a recession.

Oil prices seemed to be mounting a rebound before the resurgence of old financial concerns, according to Price Futures Group analyst Phil Flynn.

On growing concerns about corporate profitability and the world economy, the dollar increased. Since buyers who use foreign currencies must pay more for oil, a higher dollar reduces demand.

The dollar rose as gold prices remained unchanged. U.S. equities declined as disappointing profits stoked concerns about the economy.

Investors continued to be worried that potential interest rate increases by central banks battling inflation may impede economic growth and reduce energy consumption in the US, UK, and the EU.

At their next meetings, the U.S. Federal Reserve, the Bank of England, and the European Central Bank are all anticipated to hike interest rates. May 2–3 sees a Fed meeting.

Additionally, oil dealers were concerned that worldwide low refining margins may push refiners to limit their oil purchases.

Dennis Kissler, senior vice president of trading at BOK Financial, said that “the near-term pressure has been from rising interest rates and refining run rate margins contracting, which could be a sign demand is slipping.”

The belief that holiday travel in China would increase gasoline consumption and anticipation of a decline in U.S. crude stocks helped to drive up oil prices early in the day.

Support was also given by planned and unplanned supply reductions. After a month-long halt as members of the OPEC+ production group prepared for the start of voluntary output cutbacks in May, Iraq's northern oil shipments have showed no evidence of an impending resume.

The American Petroleum Institute was scheduled to release statistics on U.S. stocks on Tuesday. Analysts anticipate a decrease in crude stocks of roughly 1.7 million barrels.


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