The price of West Texas Intermediate fell 5.6% to settle below $85 per barrel, the most since September 2022. Despite indications of a tight market at the moment, technical selling, algorithm-driven traders racing to exit, and the possibility of future supply growth caused the price decline to spiral out of control. The Bloomberg Commodity Spot Index experienced its worst decline since March, when the US banking crisis shook markets, as a result of the decline in crude prices.
Crude oil has reversed course over the past week amid a barrage of comments suggesting the increase was exaggerated after increasing by over 40% from mid-June to late September. The decline has occurred against a backdrop of mounting anxiety about interest rates and the economy, which in recent weeks has roiled the bond and equity markets. The news that petrol demand in the US fell to its lowest seasonal level in 25 years on Wednesday only made the situation worse.
“There is no doubt that having a horrible demand print, in a period where the world is worrying about demand yet again, compounded the selling pressure today,” said Greg Sharenow, who oversees a portfolio at Pacific Investment Management Co. that is concentrated on energy and commodities.
The 50-day moving averages of both WTI and the world’s benchmark Brent have now fallen below them, a negative technical indicator. The price of petrol futures plunged 6.9% to around $2.20 per gallon.
The largest US storage hub, Cushing, Oklahoma, had an increase in inventory for the first petroleum in eight weeks. Even nevertheless, nationwide stockpiles kept falling to their lowest levels since December 2022, and this week saw reduced flows on a crucial North American pipeline.
Saudi Arabia and Russia, the two heads of OPEC+, earlier agreed to maintain production cuts of more over 1 million barrels per day through the end of the year. By making the market more competitive for timely barrels, reducing stocks, and limiting supply, such supply reductions had sparked the most recent surge.
However, in recent sessions, investors have expressed concern over the possibility that the Federal Reserve would continue to raise interest rates. As a result, the dollar has strengthened, making commodities more expensive for most consumers. Raw materials have also been harmed by sharp increases in US Treasury yields.