Oil tanks again as U.S. crude beneath $70 on economic worries

Investing.com — The selloff in oil isn’t ending, and it might not really until the market hears the Federal Reserve’s latest take on US interest rates.

Crude prices hit new five-week lows on Wednesday, tumbling more than 4% after the 5% plunge in the previous session, hours before the Fed’s Federal Open Market Committee, or FOMC, was scheduled to announce its for May. 

“Today was always likely to mark the end of the US central bank’s tightening cycle – not that it has explicitly signaled this – but we’ve now reached a stage in which every rate hike could have unwanted and unintended consequences,” said Craig Erlam, analyst at online trading platform OANDA.

“The US may be heading for recession and they may not be alone which doesn’t bode well for crude demand.”

​​New York-traded West Texas Intermediate, or , for June delivery was down $3.36, or 4.7%, to $68.31 per barrel by 11:23 ET (15:23 GMT). The session low was $68.28.

Chart-wise, WTI could lose after $2 or so, although a rebound might come in before that, Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said.

“If selling intensifies, the decline in WTI can extend to the 200-week SMA of $67,” Dixit said, referring to the Simple Moving Average. “But there’s also the chance of a recovery towards the $71.80- $72.60 levels as the market is quite oversold as it is.”

London-traded for July delivery was off by $3.30, or 4.4%, to $72.02. The session bottom was $72.

The sell-off in oil accelerated after the U.S. Energy Information Administration, or EIA, reported on Wednesday a modest drawdown in U.S. crude stockpiles for last week. The agency also cited a surprise build in gasoline inventories and a slighter larger than expected drop in distillate balances.

To fight , the Fed has added 475 basis points to rates in nine increases since March 2022. Rates now stand at a peak of 5%, compared with just 0.25% at the start of the coronavirus pandemic in March 2020. Another quarter-point hike from today will bump up rates to a peak of 5.25%.

Inflation itself, as measured by the Fed’s favorite price indicator — the Personal Consumption Expenditure, or , Index — grew by just 4.2% in the year to March this year from a four-decade high of 6.6% in the 12 months to March 2022.

Despite the cooling in prices, annual inflation remains at more than double the Fed’s 2% target. 

The U.S. banking sector, meanwhile, exhibited new signs of stress this week with the takeover of . Adding to concerns were a potential debt default by the United States and readings on US  and durable goods that came in lower than expected.

inventories fell by almost 1.3 million barrels last week, declining for a third straight week though far less than the prior week, while gasoline stockpiles actually rose versus expectations for a drop, the EIA reported.

Balances for distillates, meanwhile, fell just a little more than forecast, the EIA said in its Weekly Petroleum Status Report for the week ended April 28.

Analysts tracked by Investing.com had expected the EIA to report a drop of 1.280 million barrels for the week ended April 28, versus the previous week’s draw of 5.054M.

The Biden administration, meanwhile, released 1.3 million barrels from the Strategic Petroleum Reserve, or SPR, last week, the EIA report showed.

On the front, the EIA reported a build of 1.743M barrels. Analysts had expected the agency to cite a draw of 1.157M barrels instead, after the previous drop of 2.408M barrels for the week to April 14. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With , the EIA reported a drop of 1.191M barrels. Analysts had forecast a 1.084M barrel draw, against a decline of 0.576M in the prior week. Distillates are refined into , diesel for trucks, buses, trains and ships, and fuel for jets.

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