New York May 5 2022: Crude futures fell into negative territory midday US trading May 5 as part of a broad market selloff sparked by economic growth concerns following the largest US Federal Reserve interest rate hike since 2000.
At 1653 GMT, NYMEX June WTI was down 64 cents at $107.17/b and ICE July Brent was 35 cents lower at $109.79/b.
“[Crude] is getting caught up in a ‘risk off’ move in broader markets,” Price Futures Group analyst Phil Flynn said, noting that most other oil market news drivers appeared bullish.
“We are definitely back to a ‘slowdown of the economy’ mode,” Flynn said.
Major US stock indexes were trading as much as 5% lower midday amid concerns that tighter US monetary policy would slow future growth.
The Federal Open Market Committee announced May 4 it would raise its target interest rate 50 basis points. The market impact of the move was mitigated, however, after Fed chair Jerome Powell said in a May 4 presser that while similar moves were on deck for this summer, larger rate hikes were unlikely.
However, this dovish narrative came under pressure after the Bank of England May 5 raised its interest rate 25 basis points to 1%, a 13-year high, and forecast economic contraction in 2023.
“Today’s big theme is that the global growth story is at risk,” OANDA Senior Market Analyst Ed Moya said. “The Bank of England forecast a possible recession next and that has unnerved a lot of traders that the greatest trade on earth of easy money is long gone and instead we are going to see continued tightness from central banks that is going to cripple growth and hurt crude demand.”
NYMEX June RBOB was down 3.08 cents at $3.6215/gal and June ULSD was 13.13 cents lower at $4.0657/gal.
Despite increasingly bearish economic outlooks, crude was holding comfortably above the $100/b level as a proposed EU embargo on Russian oil imports tightened global supply outlooks.
The EU’s sixth sanctions package against Russia unveiled May 4 would, if approved by all members, ban crude imports within six months and halt flows of Russian oil products by the year-end. Some heavily dependent countries, including Hungary and Slovakia, are pushing for longer timeframes.
Meanwhile, OPEC+ countries are due to meet May 5 to agree output for June. OPEC+ has already found itself failing to hit previous targets due to disruptions and a lack of investment hampering output.
“Don’t expect them [OPEC+] to ramp up output though,” ING’s head of commodities strategy Warren Patterson and senior commodities strategist Wenyu Yao said in a daily note.
According to them, spare capacity is scarce, and limited to a few OPEC+ members. Meanwhile, Russia’s presence will also likely influence the proceedings and final decision.
“It is hard to see Russia supporting a supply increase when demand for their oil is under pressure,” said Patterson and Yao.
