Crude oil prices hit a three-week low on Thursday, trading down over 2.5% amid a significant uptick in gasoline inventories and continued fears of recession countering demand growth.
At 1:15 p.m. EST on Thursday, Brent crude had shed 1.99%, trading at $81.47 per barrel, just above the resistance mark of $80. West Texas Intermediate (WTI) was trading down 1.92%, at $77.64 per barrel.
Oil price gains from a rally in the first week of March, when OPEC+ announced surprise oil output cuts, have now been erased.
Last week's U.S. labor data has continued to put downward pressure on oil prices, with new numbers showing a gradual slowing of the labor market.
This, combined with repeated indications from the Federal Reserve that there will be one more rate hike in May because the pause button is pushed has markets nervous.
"At the end of the day, one of the big reasons why we're sliding is fear of recession," Bob Yawger, executive director of energy futures at Mizuho, told Reuters.
On Wednesday, the Federal Reserve released its Beige Book, which indicated that banks are tightening lending standards due to uncertainty and liquidity concerns in the aftermath of the collapse of Silicon Valley Bank (SVB) in early March. Consumer spending was perceived as flat.
On Thursday, weekly unemployment data showed that U.S. claims have been slowly increasing in recent weeks.
Gasoline inventories have also weighed on oil prices, with the EIA showing demand slipping 4.2% on a four-week average, with inventory rising 1.3 million barrels in the week ended April 14.
"If the Fed stays the course, broad financial conditions should continue to tighten, the economy should decelerate into recession, and stocks should trade down sharply," Bloomberg cited Chris Senyek of Wolfe Research as writing in a note to clients.
"On the flip side, the biggest upside risk to our bearish call remains the Fed backing off way too soon! Although, if the Fed fails to sustainably bring down inflation, the ultimate pain will likely be much worse 12-24 months down the road," he added.
By Tom Kool for Oilprice.com
Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More