Remember OPEC+ Surprise Production Cut? Now, Recession Fears Drag Oil Prices Back To Square One

Concerns of slowing demand and expectations of further interest rate hikes have dragged the price of oil back to square one from the highs it attained earlier this month following the surprise production cut announcement by OPEC+.

What Happened: Oil prices fell nearly 4% on Wednesday, extending the previous session's decline despite a report indicating a decline in U.S. crude inventories.

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West Texas Intermediate futures expiring in June were trading at $74.59 per barrel during Thursday afternoon Asian trade, close to the levels seen in early April before OPEC+ announced its decision to trim oil production by 1.16 million barrels per day beginning May. The announcement had sent oil prices higher with WTI futures breaching the $83 per barrel mark by mid-April.

On Wednesday, the United States Oil ETF USO closed 3.34% lower while the Energy Select Sector SPDR Fund XLE lost 1.33%.

Falling Inventory: Energy Information Administration, or EIA, data showed U.S. crude inventories declined last week by 5.1 million barrels to 460.9 million barrels, far exceeding analyst forecasts of a 1.5 million drop, reported Reuters.

Jim Ritterbusch of consultancy Ritterbusch and Associates said the complex appears more focused on a recession that may be well under way rather than some current EIA statistics that have generally been tilting bullish, according to the report.

Moreover, the U.S. consumer confidence fell to a nine-month low in April. “This (data) will add credence to claims that the U.S. economy is edging closer to a recession,” PVM Oil‘s Stephen Brennock told Reuters.

Indeed, market participants appear to be concerned that rate hikes by central banks may just not be over yet. According to the CME FedWatch Tool, there is over 70% probability that the central bank will hike the policy rate by 25 bps in its May meeting.

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