Oil Holds Three-Day Slump as Slowdown Concerns Take Center Stage

(Bloomberg) -- Oil steadied after three days of declines as investors weighed a hawkish set of minutes from the Federal Reserve and an industry report that pointed to a substantial build in US crude inventories.

West Texas Intermediate traded above $87 a barrel, holding a drop of almost 6% over the prior three days. The Fed minutes showed officials committed to raising interest rates to a restrictive level and holding them there to curb inflation, potentially slowing growth and hurting energy demand.

Figures from the industry-funded American Petroleum Institute, meanwhile, showed an increase of more than 7 million barrels last week, according to people familiar with the release. Official data will follow later Thursday.

Crude rallied last week as the Organization of Petroleum Exporting Countries and its allies agreed to cut supply, but that advance has since been partially unwound. Traders have become increasingly concerned about the scope for a global recession and slump in oil consumption, as well as the drag from a strengthening dollar and China’s Covid Zero strategy. A US-led plan to cap Russian crude prices is also in focus as concerns mount over the initiative.

“The dominant and persistent force is recessionary fears,” said Vandana Hari, founder of Vanda Insights in Singapore. That said, “the correction from last week’s overbought territory may be almost through. Brent may find a temporary bottom around $90,” she said.

To step up the response to Moscow’s war in Ukraine, the Biden administration is leading a plan to cap the price of Russia’s crude, complementing tighter European Union sanctions that start in December. Countries working to impose the cap will meet over the next several weeks to determine the price ceilings even as some US officials have become concerned the plan may backfire.

Widely-watched time spreads have weakened this week. Brent’s prompt spread -- the difference between the two nearest contracts -- was $1.61 a barrel in backwardation, compared with more than $2 at the end of last week.

OPEC reduced forecasts for the amount of its crude needed this quarter, according to a monthly report on Wednesday. The International Energy Agency will release its analysis of the market later Thursday, shedding further light on demand trends and the likely impact of sanctions on Russian crude flows.

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