Oil sinks 5pc in biggest one-day drop in more than a year
Oil plunged the most in more than a year as early signals that demand is flagging exacerbated markets’ unease over the prospect of a punishing stretch of high interest rates.
West Texas Intermediate slumped 5.6 per cent to settle below $US85 a barrel, the biggest one-day drop since September 2022.
The drop in oil came even as OPEC+ leaders Saudi Arabia and Russia committed to sticking with production curbs of more than 1 million barrels a day until the end of the year. Bloomberg
Despite signs of a tight market, the prospect of more supplies in the future, as well as technical selling and algorithm-driven traders rushing to exit, pushed the price decline into a full-blown rout.
After rallying about 40 per cent from mid-June to late September, crude has reversed course over the past week amid a drumbeat of commentary that the surge was overdone.
The retreat has come against a backdrop of rising angst about interest rates and the economy that has rattled equity and bond markets in recent weeks.
“It is clear that the global growth outlook will be taking a major hit over the next year, which spells trouble for the crude demand outlook,” said Ed Moya, senior markets analyst at Oanda. “Energy traders quickly realised the path to $US100 oil isn’t quite there.”
Both WTI and global benchmark Brent have now dropped below their 50-day moving averages, a bearish technical signal. Petrol futures also plummeted 6 per cent to trade at $US2.22 a gallon after data revealed that demand for the fuel dropped to the lowest seasonal level in 25 years, signalling slower economic growth.
Meanwhile, inventories at the largest US storage hub in Cushing, Oklahoma, increased for the first time in eight weeks. Still, stockpiles nationwide continued to drain to the lowest since December 2022, and a key North American pipeline has also seen lower flows this week.
Saudis, Russians stick with cut
Earlier, OPEC+ leaders Saudi Arabia and Russia committed to sticking with production curbs of more than 1 million barrels a day until the end of the year. Those supply cuts had spurred the recent rally by tightening the market, shrinking inventories and increasing competition for prompt barrels.
The two oil allies reaffirmed their plans with identical wording in separate statements, released first on the Saudi Press Agency then soon after by Russian Deputy Prime Minister Alexander Novak.
The output curbs were intended “to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets”, they said.
Yet, OPEC’s own data indicate the measures will leave global markets severely short this quarter, potentially draining inventories by more than 3 million barrels a day – the fastest pace in years.
High prices stand to benefit Saudi Crown Prince Mohammed bin Salman as his kingdom splashes out on everything from futuristic cities and international telecommunications deals to top-flight footballers and golfers. They are also a critical source of extra revenue for President Vladimir Putin as his country wages war on Ukraine.
Bloomberg
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