Crude Oil Declines; Concerns Over Global Growth Slowdown Impact Prices

Oil prices experienced a decline on Thursday, retreating from the seven-week highs touched earlier in the week due to widespread concerns about a potential significant slowdown in global economic growth.

As of 9:20 AM ET, futures were down 2% at $104.94 per barrel, while the contract decreased by 1.6% to $107.38 per barrel. U.S. gasoline prices fell 2.8% to $3.6171 per gallon.

Recent movements in the crude market, similar to other risky assets, have been downward, fueled by worries that rising inflation and the ensuing tightening of monetary policy could curtail consumer spending, severely affecting future economic growth.

Federal Reserve Chairman Jerome Powell cautioned earlier this week that there could be economic repercussions as efforts to reduce inflation continue. On Thursday, new data indicated that the U.S. economy is beginning to slow, as the jobless claims rose to a 10-week high and a key economic indicator took a significant downturn.

Goldman Sachs, a prominent investment bank, revised its forecasts for U.S. growth for this year and next at the start of the week, and on the following day, it lowered its GDP growth forecast for China in 2022 due to COVID-related economic disruptions in the second quarter.

In Shanghai, COVID-19 cases have remained stable for four consecutive days outside the most heavily restricted areas, although full easing of restrictions is not expected until early June.

Analysts at ING noted that with China maintaining its COVID-zero policy, risks to demand will likely persist.

Furthermore, uncertainties loom regarding the European Union’s proposed sanctions package, which may not completely eliminate Russian exports to Europe due to strong opposition from several Eastern European nations, particularly Hungary. This leaves European buyers to manage a less severe supply shortfall.

Analyst Fawad Razaqzada from City Index remarked that the situation is primarily a supply-oriented issue, stating, “Unless OPEC and its allies increase production significantly and swiftly, it is challenging to envision a meaningful decrease in prices.”

Reports suggest that China is looking to replenish its strategic crude reserves with Russian oil, indicating that Moscow’s supply may not be entirely removed from the global market.