Oil slides as recession fears outweigh large US inventory draw

NEW YORK: Oil prices slipped on Wednesday, extending sharp losses from the previous session, even after a report showed that U.S. crude inventories fell more than expected last week, as weak economic data raised fears of recession in the world’s biggest economy.

Brent crude fell by $1.08, or 1.3%, to $79.69 a barrel by 10:54 a.m. EDT (1454 GMT). U.S. West Texas Intermediate crude fell 76 cents, or 1%, to $76.31.

U.S. crude oil inventories fell last week by 5.1 million barrels to 460.9 million barrels, far exceeding analysts’ expectations in a Reuters poll for a 1.5 million-barrel drop, the Energy Information Administration (EIA) said.

Gasoline and distillate stocks also drew down by 2.4 million barrels to 221.1 million barrels and almost 600,000 barrels in to 111.5 million barrels, respectively, the EIA said.

“Despite today’s chunky crude draw, prices remain in negative territory as demand concerns and recessionary fears overshadow the more supportive EIA data points,” said Matt Smith, lead oil analyst for the Americas at Kpler.

Oil prices have erased all their gains since the Organization of the Petroleum Exporting Countries (OPEC) and producer allies such as Russia, known collectively as OPEC+, announced in early April an additional output reduction until the end of the year.

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Russian Deputy Prime Minister Alexander Novak said on Wednesday that OPEC+ remains an efficient tool for coordination on global oil markets.

Oil prices dived more than 2% on Tuesday amid lingering economic concerns and expectations of further interest rate hikes that could curtail fuel demand growth are countering signs of improving short-term consumption gains.

U.S. consumer confidence dropped to a nine-month low in April as worries mounted, heightening the risk of the economy falling into recession this year.

“This (data) will add credence to claims that the U.S. economy is edging closer to a recession,” said PVM Oil’s Stephen Brennock.

Investors also showed concern that potential 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 U.S. 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.

A report showing a fall in U.S. oil stocks limited losses, however, especially on WTI.