Oil futures: Crude slides 1.5% on rate hike, recessionary fears

Quantum Commodity Intelligence – Crude oil futures Monday were sliding lower as recessionary fears, a stronger dollar and weaker diesel continued to weigh on sentiment and counter supply constraints.

June ICE Brent futures were trading at $84.96/b (1840 GMT), compared to the day's range of $85.21-$86.52/b and Friday's settle of $86.31/b.

At the same time, May23 NYMEX WTI was trading $81.04/b, versus Friday's close of $82.52/b. Jun23 was trading $81.03/b versus the previous close of $82.43/b.    

"While the flat price and time spreads have strengthened on the back of expectations of a tighter market, demand concerns clearly remain. Weaker refinery margins remain a feature, with the weakness predominantly driven by middle distillates. Stronger crude prices will not be helping margins for refiners either," said Warren Patterson, head of ING's commodity research.

European diesel cracks slumped to fresh pre-Ukraine war lows last week as French refineries restarted after strike action, while the Asian market braced for fresh Chinese export quotas, boosting supply and narrowing the diesel EFS arb.

Front-month low sulphur gasoil ended the $772.75/mt, leaving its premium to Brent crude at $17.69/b, down nearly $6/b since the end of March and at its lowest since the week before the start of the Russian invasion of Ukraine.

Diesel 10ppm cracks in Asia Monday also slumped to fresh 14-month lows, sliding below $14/b versus Brent.  

"Diesel is flashing signs of an economic slowdown with trucking and container port activity being noticeably down in China," noted Saxo Bank in its latest client report.

Supplies

But crude supplies have tightened on several fronts, primarily after OPEC+ countries announced 1.15 of reductions from May and Russia extended its own 500,000 bpd cuts, while exports from Northern Iraq remain halted.

The suspension of oil exports from the semi-autonomous Kurdish region of Iraq entered a fourth week as Baghdad and Ankara attempt to find a deal to restart pipeline exports to the Mediterranean terminal of Ceyhan, although reports Monday indicated the two side were edging closer to an agreement.

Meanwhile, US Treasury Secretary Janet Yellen told CNN said banks are likely to become more cautious and may tighten lending further in the wake of recent bank failures, which could negate the need for further Federal Reserve interest rate hikes.

But the Dollar Index rebounded strongly Monday from last week's lows, up around 0.7% to 102.20 points and fuelling rate-hike speculation.

Warning signs flashed up from Sweden as data released Monday indicated GDP is set to shrink by 1% in 2023, versus a previous forecast of 0.7%.