Oil prices are falling Wednesday and have erased all their gains since the voluntary production cuts by Opec+ exporting countries, as investors ignore the drop in U.S. inventories and focus on recession fears.
Brent dips below $80 for the first time since late March
Around 14:40 GMT (16:40 in Paris), the barrel of Brent North Sea for delivery in June gave up 1.10% to 79.90 dollars. Its U.S. equivalent, a barrel of West Texas Intermediate (WTI), for delivery in the same month, lost 0.80% to 76.45 dollars. Brent crude fell below $80 for the first time since late March, and WTI hit its lowest monthly price.
“Fears of a recession and therefore lower demand” are pushing investors away from the crude market, said Fawad Razaqzada, an analyst at City Index. “So both oil contracts finally closed the price gaps that had formed earlier this month,” when some members of the Organization of the Petroleum Exporting Countries and their allies (Opec+) announced voluntary oil production cuts to the surprise of the market, Razaqzada recalls. The prices of the two global crude oil benchmarks jumped by about 6 dollars.
Investors have created downward pressure
Another important factor weighing on prices: according to the analyst, “many investors undoubtedly took profits on their long positions after prices formed these large spreads earlier this month.” Taking a long position in a market means buying an asset in anticipation of a price increase. “By liquidating their positions, they sold oil into the market, creating downward pressure,” Razaqzada continued.
Commercial crude oil inventories also fell more than expected last week in the United States, according to figures released Wednesday by the U.S. Energy Information Agency (EIA). Commercial reserves decreased by 5.1 million barrels in the week ended April 21. Analysts expected a more moderate decline of 1.5 million barrels in commercial crude oil and gasoline reserves, according to the median of a consensus compiled by Bloomberg. “This situation is generally supportive of prices,” emphasizes Fawad Razaqzada, but the state of U.S. inventories has not been enough to reverse the price trend.
