LONDON: Oil fell 3pc to below $58 a barrel on Thursday, extending the previous session’s 3pc drop, pressured by mounting recession concerns and a surprise boost in US crude inventories.
In a sign of investor concern that the world’s biggest economy could be heading for recession, weighing on oil demand, the US Treasury bond yield curve inverted on Wednesday for the first time since 2007.
Global benchmark Brent crude LCOc1 fell as much as $1.81, or 3pc, to $57.67 a barrel and by 1117 GMT was down $1.57 at $57.91. US crude CLc1 fell $1.03 to $54.20.
“The oil market has become a recession fear gauge,” said Norbert Ruecker of Swiss bank Julius Baer. “The North American market remains amply supplied with storage levels well above historical averages.”
The price of Brent is still up 10 percent this year thanks to supply cuts led by the Organization of the Petroleum Exporting Countries and allies such as Russia, a group known as OPEC+.
In July, OPEC+ agreed to extend oil output cuts until March 2020 to prop up crude. A Saudi official on Aug. 8 indicated more steps may be coming, saying “Saudi Arabia is committed to do whatever it takes to keep the market balanced next year.”
But the efforts of OPEC+ have been outweighed by worries about the global economy amid the U.S.-China trade dispute and uncertainty over Brexit, as well as rising U.S. stockpiles of crude and higher output of U.S. shale oil.
“The market is becoming very anxious about global growth,” said Tamas Varga of oil broker PVM.
China reported disappointing data for July, including a surprise drop in industrial output growth to a more than 17-year low. A slump in exports sent Germany’s economy into reverse in the second quarter.
A second week of unexpected rises in U.S. crude inventories is adding to the pressure. US crude stocks USOILC=ECI grew by 1.6 million barrels last week, compared with expectations for a drop of 2.8 million barrels, the Energy Information Administration (EIA) said.