HOUSTON: Oil dropped by $2 a barrel on Tuesday after two sessions of gains as jitters about the global economic outlook and a firmer dollar countered optimism about demand in China and expectations of a drop in US crude inventories.
Brent crude fell by $1.93, or 2.4 per cent, to $80.80 a barrel by 11:30 a.m. ET (1530 GMT). US West Texas Intermediate crude dropped $1.73 to $77.02. On Monday, both contracts rose by more than 1pc.
A survey on showed US consumer confidence fell to a nine-month low in April, feeding worries about a recession the day after regional lender First Republic reported a more than $100 billion flight in deposits, stoking fears of a potential banking crisis.
The dollar rose on deepening worries about corporate earnings and the global economy. A stronger dollar pressures oil demand by making the commodity more expensive for buyers holding other currencies.
“A recovering dollar is weighing on sentiment,” said Stephen Brennock of oil broker PVM. “I suspect that upcoming macro releases concerning U.S. house prices and consumer confidence are also keeping buyers on the sidelines.” Investors remain wary that possible interest rate hikes by inflation-fighting central banks could slow economic growth and dent energy demand in the United States, Britain and the European Union.
The US Federal Reserve, the Bank of England and the European Central Bank are all expected to raise rates at their coming meetings. The Fed meets over May 2-3.
Also worrying markets were weak refining margins globally that could force refiners to curb oil buying.
Dollar up, stocks fall
The dollar was largely higher on Tuesday as Joe Biden confirmed his bid to run for re-election as US president next year.
The announcement comes with the US economy still battered by high inflation and interest-rate rises, triggering concerns of a possible recession.
Worries that the global economy could enter a downturn this year continued to weigh heavily on stock markets Tuesday.
“Equity markets are slightly under pressure on Tuesday following a wide array of earnings releases and as investors eye further US data later in the week,” said Craig Erlam, senior market analyst at OANDA trading platform.
Wall Street fell, with the Dow shedding 0.4 per cent and the tech-heavy Nasdaq dropping 1pc ahead of a flurry of tech firm results.
Asian markets ended mostly lower, with Hong Kong falling sharply on the back of major losses in Chinese firms, as a lack of clear direction ahead of key announcements this week presented a challenge for global investors.
It was the third straight day of losses on the Hang Seng Index, with Alibaba Group Holdings down more than three percent, internet giant Baidu down nearly four and pharmaceutical maker Wuxi Biologics dropping almost seven.
Published in Dawn, April 26th, 2023
