Oil drops 2%, lowest this month

Oil prices fell to their lowest level this month on Tuesday, dropping by 2%, as a stronger dollar and concerns of an economic slowdown outweighed hopes of higher demand from China. Brent crude dropped by 2.4% to $80.77 a barrel, while US West Texas Intermediate crude closed 2.2% lower at $77.07 a barrel. This fall came after two days of gains for the commodities. Oil prices had been supported by expectations of lower US crude inventories, and by optimism that holiday travel in China would increase fuel demand.

The fall in oil prices on Tuesday was exacerbated by investor concern over corporate earnings and a potential recession. US consumer confidence hit a nine-month low in April, while regional lender First Republic reported a flight in deposits of more than $100bn, sparking fears of a banking crisis. The global banking sector had already been hit by a fall of more than 49% in First Republic’s shares on Monday, and by pressure on Wall Street on Tuesday.

Oil traders are also worried about weak refining margins and the possibility that global refiners will need to cut oil purchases. The rise of interest rates and the contraction of refinery run rate margins are seen as signs that energy demand is slipping, adding to pressure on oil prices. The US Federal Reserve, the Bank of England and the European Central Bank are all expected to raise rates at their coming meetings.

Analysts expect that supply cuts could lend support to oil prices. Members of the OPEC+ producer group are preparing for voluntary output cuts in May, while Iraq’s northern oil exports have shown little sign of restarting after a month-long standstill. However, if demand continues to weaken, oil prices may suffer further losses in the short term.