Oil’s Chaotic Selloff Worsens With 7.2% Tumble at Asia Open

Rob Verdonck and Jake Lloyd-Smith

May 4, 2023 at 7:22 AM·2 min read

(Bloomberg) -- Oil sank to its lowest since 2021 as weak demand data from the US added to concerns that the global economy is set for a recession.

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West Texas Intermediate futures tanked by as much as 7.2% at the start of trading in Asia, before paring losses. The US benchmark extended its decline to 17% this year, showing that a plan by OPEC and its allies to regain control of the market by cutting production starting this month isn’t yet working.

The sharp drop at the open comes as China, the largest crude importer, returns from a five-day holiday. The bearishness in oil echoes that in wider markets, with stocks in Asia facing headwinds after a US slide following the decision Wednesday by the Federal Reserve to boost rates by 25 basis points.

“Concerns about weakening economic growth in major economies saw commodities come under further downward pressure,” ANZ Banking Group Ltd. analysts Brian Martin and Daniel Hynes said in a note. “Sentiment is likely to remain bearish in the oil market.”

In the US, a government report Wednesday showed gasoline demand contracting and fuel supplies swelling. Jet fuel demand also dropped, while remaining slightly above year-earlier levels.

Oil has also come under pressure in 2023 as flows from Russia have proved to be more resilient than expected, despite a vow from Moscow to reduce supplies and a web of Western sanctions imposed after the invasion of Ukraine.

The US crude benchmark’s prompt spread — the difference between its two nearest contracts — has narrowed sharply in recent weeks signaling that traders expect conditions to loosen. The gap was down to 2 cents a barrel in backwardation on Thursday compared with a peak of 20 cents last week.