WTI sinks close to 5% as risk aversion takes hold amidst global economic slowdown
- WTI loses ground for a fourth consecutive day as Wall Street reacts to Yellen’s debt obligation warning.
- Oil prices are pressured by weak manufacturing activity in China.
- OPEC production cuts cushioned WTI price amidst economic uncertainty and falling demand.
Western Texas Intermediate (WTI), the US crude oil benchmark, plunges more than 4%, reaching a five-week low, on risk aversion spurred by fears of contagion amongst US regional banks, alongside worries about the debt ceiling in the US. The latest report on business activity in China showed that the economy dipped. Therefore, WTI is trading at $71.99 per barrel, down 4.94%.
WTI extended its losses for four straight days. Wall Street registers losses after US Treasury Secretary Haney Yellen commented that the US government could not pay its debt obligations by June 1.
Oil prices came under pressure as China’s manufacturing activity shrank in April, as the National Bureau of Statistics (NBS) revealed. Manufacturing PMI dropped from 51.9 to 49.2 in April, while the Non-Manufacturing PMI edged down to 56.4 vs. 58.2 in March. The Composite figure stood at 54.4 from 57.0.
Zhao Qinghe, a Senior NBS statistician, said, “A lack of market demand and the high-base effect from the quick manufacturing recovery in the first quarter” was among the factors that led to the contraction in April.”
Reuters cited sources commented, “The unpredictable action of central banks in their mission to tame elevated consumer and producer prices, the rhetoric and action of consuming and producing nations have all cast a rather long shadow of doubt on prospects going forward.”
Two major central banks are expected to hike rates in the week: the Federal Reserve (Fed) and the European Central Bank (ECB).
Aside from this, WTI was cushioned as the Organization of Petroleum Exporting Countries (OPEC) cut its output by 190K bpd in March. The cartel agreed to cut production in late 2022 as the economic outlook worsened. For April, OPEC agreed to cut output by 1.27 million bpd, part of a 2 million reduction by the OPEC+ last year.