Oil prices plummet as demand dips and inflation runs rampant
Oil prices dropped amid growing expectations of reduced demand, with the International Monetary Fund (IMF) cutting its economic growth forecasts and warning of higher inflation.
Brent crude slipped 4.32 per cent to $108.30 per barrel, while WTI Crude dipped 4.56 per cent to $103.30.
The follows prices rising to their highest levels yesterday since March 28, following Libyan oil supply disruptions.
The IMF dropped its forecast for global economic growth by nearly a full percentage point, citing Russia’s invasion of Ukraine, and warned that inflation is now a “clear and present danger” for many countries.
Meanwhile, China’s economy slowed in March, worsening an outlook already weakened by COVID-19 curbs and the conflict in Ukraine.
Concerns over demand growth were established last week, after a preliminary poll from news agency Reuters yesterday showed US crude oil inventories are likely to have risen last week.
Commerzbank energy analyst Carsten Fritsch said: “The high price level has clearly put the brakes on crude oil processing by weighing on refining margins. What is more, the coronavirus restrictions put in place by the authorities are likely to have played their part. The lockdowns will presumably see refineries process even less crude oil in April.”
Nevertheless, prices remain above the $100 milestone, with both major benchmarks highly influenced by volatile geopolitical factors.
Craig Erlam, senior market analyst at OANDA explained: “There remain plenty of upside risks to the oil price, even at these levels, which makes today’s large declines all the more interesting. Protests in Libya have knocked out around half a million barrels per day of output which contributed to Monday’s rally. While this is only a temporary hit, it comes at a bad time as far as global supply is concerned.
Fuel demand in China – the world’s largest oil importer – is expected to pick up as manufacturing plants prepare to reopen in Shanghai, which could cause prices to rally once again.
Meanwhile worries over supplies have deepened, with reports that OPEC+’s supply gap widened in March, with Western sanctions hitting Russian output following its invasion of Ukraine.
OPEC+ produced 1.45m barrels per day below its production target last month, driven by Russian shortfalls.
Russia produced 300,000 barrels per day below its target in March, at 10.018 million bpd.
The International Energy Agency (IEA) said in a monthly report last week it expected Russian oil output losses to grow to 1.5m barrels per day in April and to double to 3 million barrels per day from May because of restrictions and buyer aversion.
Alongside reduced production, the European Union (EU) is considering a ban on Russian oil, which would escalate supply shortage fears.
The bloc remains split on the prospect of sanctions, but France is now favouring the measure.
French Finance Minister Bruno Le Maire said on Tuesday that an embargo on Russian oil at EU level was in the works, revealing that France’s President Emmanuel Macron wants such a move.
He said: “I hope that in the weeks to come we will convince our European partners to stop importing Russian oil.”