Oil suffers biggest fall in six months on demand concerns

US oil prices suffered their biggest drop in six months on Thursday as indications of flagging demand in China and the US sent jitters through a previously buoyant market.

West Texas Intermediate, the US benchmark, closed down 7.1 per cent at $60 a barrel, marking its biggest daily fall since September.

The slide put the breaks on an almost unbroken rally in crude prices this year. WTI had almost doubled in value since November as the world reopened in the wake of pandemic-induced lockdowns.

“I think the market is catching up with itself in terms of the actual physical demand for crude in China and the United States, and that’s what’s led to this precipitous drop throughout today,” said Christopher Page, senior oil market analyst at Rystad Energy.

In Beijing, authorities were reported to be cracking down on imports of heavy emissions fuels, triggering concerns over the future of Asian demand.

In the US, oil inventories have swelled as petrochemical plants take longer than expected to come back online after the Texas freeze. The Energy Information Administration on Wednesday reported a 2.4m barrel increase in stocks.

Brent crude, the international marker, was also down, falling 7.6 per cent to $62.82.

Oil prices had crashed last April, when a glut of Saudi supply hit the market just as economies were shut down by coronavirus lockdowns. WTI plunged into negative territory for the first time.

That sent production tumbling as oil companies were forced to shutter wells and lay off thousands of employees. But the recovery has prompted speculation that the US shale patch may return to growth once more.

Thursday’s drop came as investors sold US long-term government bonds following a decision by the Federal Reserve to raise its growth and inflation forecasts.

Analysts said the weakness in oil markets was unlikely to last. Michael Tran, commodity strategist at RBC Capital Markets, advised investors to “wait for the flush-out to run its course”.

“Markets rarely move in straight lines and the current soft patch should not detract from what we believe will be a strong summer for global oil demand,” he said.