Brent sheds nearly 7% as market digests weak economic data

The front-month ICE Brent contract has plunged lower by $5.36/bbl on the day, to $73.96/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Oil market analysts are concerned that OPEC and its allies may reduce production further to stabilise prices if they fall steadily, if there is a severe recession in the US and if China's economic recovery fails to accelerate.

According to the International Energy Agency (IEA), 19 countries of the OPEC+ bloc failed to meet their March production targets by a total of 2.16 million b/d. Meanwhile, several major OPEC+ producers including Saudi Arabia and Russia have cut output by 3.66 million b/d from May through 2023. A further decline in oil production will dent global oil supplies.

Commercial US crude inventories were drawn by 3.93 million bbls in the week that ended 28 April, according to an American Petroleum Institute (API) estimate. Official weekly data from the Energy Information Administration (EIA) is scheduled for release later today.

Downward pressure:

Brent has slumped to its lowest level in five weeks amid fears of further interest rate hikes by the US Federal Reserve and the European Central Bank and a possible recession in the US will hurt global oil demand.

Data from the US Bureau of Labor Statistics showed that there were 9.6 million job openings in March, down from 9.9 million in February. This indicates that businesses are less confident about near-term growth prospects.

A decline in US job openings, coupled with a slowdown in Chinese manufacturing, has raised concerns about the state of the economies of the world's two largest oil consumers, says OANDA’s Ed Moya. He warns that if macroeconomic conditions worsen further, Brent may drop below $70/bbl.

Iran's oil production has exceeded 3 million b/d this month, according to Iranian oil minister Javad Owji. The IEA reported Iran's supply at 2.65 million b/d in March. With increased output, Iran will at least theoretically be able to push out more oil to global markets – although lingering sanctions will dent those prospects.

By Konica Bhatt

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