Crude Oil Drops as Global Growth Concerns Weigh In

By Peter Nurse

Oil prices declined on Tuesday, reaching their lowest points in a week as concerns over global economic growth mounted. This was particularly influenced by China, the largest crude importer, grappling with an ongoing COVID-19 outbreak.

As of 9:05 AM ET, futures were down by 0.6% at $102.46 per barrel, while the Brent contract also fell by 0.6%, trading at $105.26 per barrel. In the U.S., gasoline prices decreased by 1%, bringing the average to $3.6045 per gallon.

The drop in crude prices underscores a broader trend in global financial markets, where investors are moving away from riskier assets due to worries surrounding potential interest rate hikes and their effects on economic growth. The latest Federal Reserve stability report raised recession concerns for both the U.S. and other economies. Last week, the Bank of England warned that the U.K. economy is expected to contract in 2023.

Compounding these worries is China’s economic slowdown. Both Beijing and Shanghai have tightened restrictions as part of the country’s ongoing zero-COVID policy. These lockdowns have put significant pressure on the Chinese economy, with Premier Li Keqiang describing the employment situation as "complicated and grave."

In April, China’s crude oil imports saw an increase of nearly 7% compared to the same month last year, which was also up by 4.1% from March. However, analysts at ING noted that cumulative imports for the year are still approximately 4% lower than last year. They stated that more detailed trade data expected later in the month will shed light on the origins of the April increase, potentially indicating a rise in Russian oil flows to China due to increased discounts following the conflict.

Simultaneously, the European Union has shown signs of softening its proposed sanctions on Russian oil exports after facing opposition from countries heavily reliant on Russian energy, particularly Hungary. ING commented that the latest sanctions package may need adjustments to gain approval from all member states. Reports suggest that part of the proposal to ban EU-owned tankers from transporting Russian oil to non-EU destinations may have been dropped.

Later in the day, the U.S. is set to release its weekly inventory data amid a backdrop of historically high diesel prices. The average retail price for a gallon of gasoline hit $4.374 early Tuesday, surpassing the previous record of $4.331.