(New York) Crude prices fell back below $70 a barrel on Wednesday for the first time since the OPEC+ production cuts, which failed to sustainably raise them.
One of the leaders of the group of exporting countries, the Russian Deputy Prime Minister responsible for Energy Alexandre Novak, reacted without delay by indicating that he was “monitoring” the market.
The barrel of West Texas Intermediate (WTI), for delivery in June, dropped 4.27% to 68.60 dollars, after falling more than 5%. Its European equivalent, a barrel of Brent from the North Sea for delivery in July, lost 4.14% to 72.32 dollars.
Since Friday’s close, Brent has lost nearly 10% and WTI has fallen 11.50%.
The two world crude benchmarks have thus largely given up their gains linked to the voluntary production cuts of certain members of the Organization of the Petroleum Exporting Countries and their allies (OPEC+).
By March, they had fallen to nearly $64 a barrel.
The current slump in prices risks frustrating the cartel “so soon after” the announcement of “their production cuts”, suggests Craig Erlam, analyst for Oanda.
If the member countries have denied in the past to be guided by prices, for the analyst, “this is not entirely true”.
The cuts, announced in early April and effective from May until the end of 2023, had indeed been interpreted by many analysts as a desire by the alliance to defend a lower limit of 80 dollars per barrel of Brent.
“We will monitor the market. We will monitor the situation,” Alexander Novak said, according to Russian news agencies.
“We need to understand the reasons, the prospects. How will this evolve? “, he replied about the price situation, the fall of which could only be “short term”.
“Will the group be tempted to organize an emergency meeting or will they wait to see how the situation develops? asks Mr. Erlam.
According to the analyst, a new intervention of the group of exporting countries would undoubtedly dissuade the investors from selling, because they would know that the cartel is likely to intervene again.
Persistent recession fears
Even the decline in US crude oil commercial reserves did not allow prices to rise, with anxiety about the health of US regional banks and more global fears of recession prevailing.
Banking authorities and players had hoped that Monday’s takeover of First Republic by JPMorgan would, at least temporarily, end the turmoil in the financial world, but regional banks remain under pressure on Wall Street.
“Concerns about the US banking sector have resurfaced following the second-largest US bank failure since the 2008 crisis,” said PVM Energy analyst Stephen Brennock. “Regional bank stocks have been hurt on contagion fears.”
Meanwhile, the U.S. central bank raised rates a further quarter-percentage point on Wednesday, the 10e rise in a row. Monetary policy is now “restrictive” because inflation “is not going to come down quickly,” acknowledged Fed Chairman Jerome Powell.
But the Fed is now allowing itself the flexibility to consider, over the next few meetings, the impact on the economy of past increases and that of the tightening of credit caused by the banking difficulties before taking other decisions.
And while a pause in the hikes was not formally considered at that meeting, according to Powell, he pointed out that the language of the statement had changed in tone. The Fed no longer indicates that it anticipates additional increases: “we have removed this part. It’s “a significant change,” said Jerome Powell.
The markets fear that this strict monetary policy will weigh on the world’s largest economy by increasing the cost of credit for households and businesses. What accentuate the risks of recession, and therefore of a drop in demand for oil. For Mr Powell, a recession can still “be avoided” or be “mild”.
“If there is one global asset that can be said to be particularly sensitive to recession fears, it is oil,” says Jameel Ahmad, analyst at CompareBroker.io.