Economic Jitters Cause More Crude Losses; Upbeat OPEC Outlook Ignored

OPEC sees a 2.3 percent rise in global oil demand this year: File Image/Pixabay

Oil on Thursday continued its losing streak due partly to a stronger U.S. dollar but also because of alarm signals about the economy delivered by U.S. Treasury Secretary Janet Yellen.

Brent fell $1.43, or 1.9 percent, to settle at $74.98 per barrel, while West Texas Intermediate fell $1.69, or 2.3 percent, to settle at $70.87.

Yellen urged Congress to raise the $31.4 trillion federal debt limit  in order to avoid a default that would trigger a global economic downturn.

Yellen also stated that in addition to risking undermining U.S. global economic leadership and driving interest rates higher on mortgages, car payment and credit cards, even the threat of a default could lead to a downgrade of the U.S. government's credit rating.

"All of these analyses show that we would fall into, if this lasted for any meaningful period of time, a very substantial downturn," she said.

Other factors that caused oil's drop on Thursday included the U.S. Dow and S&P 500 stock indexes falling after California-based bank PacWest Bancorp sparked another rout in the regional banking sector.

Also, new bank loans in China dropped more than expected in April: banks extended 718.8 billion yuan ($103.99 billion) in new loans last month, less than a fifth of March's numbers and just over half of the amount expected by analysts, according to the People's Bank of China.

Zhou Hao, economist at Guotai Junan International, said that this reinforced "the concerns over the sustainability of a post-COVID recovery" and suggested "that the first wave of post-COVID recovery has more or less faded."

But China is still being held up by analysts as a major cause for market resiliency later this year: the Organization of the Petroleum Exporting Countries' (OPEC) global oil demand forecast for 2023 released on Thursday projected demand in China to rise by 800,000 barrels per day (bpd), up from its 760,000 bpd forecast last month.

OPEC also said world oil demand in 2023 will rise by 2.33 million bpd, or 2.3 percent: a figure virtually unchanged from the cartel's forecast of last month, and something jittery traders ignored on Thursday.

Dennis Kissler, senior vice president of trading at BOK Financial Securities, said of Thursday's oil trading, "The continued fears of a weaker U.S. economy and disappointing re-opening fuel demand numbers from China have postponed the anticipated strength in crude."