By Stephanie Kelly
NEW YORK (Reuters) – Oil prices steadied on Thursday after the previous day’s price drop on worries about a possible recession erased the supportive impact of a surprise cut to OPEC production targets this month.
Brent crude dropped 4 cents to $77.65 a barrel by 11:14 a.m. EDT (1514 GMT). U.S. West Texas Intermediate crude dropped 1 cent to $74.29.
Oil prices dropped almost 4% on Wednesday as jitters about a U.S. economic downturn overshadowed a larger-than-expected fall in U.S. crude inventories. [EIA/S]
Prices stabilized on Thursday as Russian Deputy Prime Alexander Novak described oil markets on Thursday as balanced.
The OPEC+ group of leading oil producers does not see the need for further oil output cuts but is always able to adjust its policy, Novak said.
Investors are watching economic data for any directional cues on energy demand.
Data on Thursday showed U.S. economic growth slowed by more than expected in the first quarter, although jobless claims fell in the week ending April 22.
“It’s kind of a mixed bag on interest rates and oil doesn’t know how to take that right now,” said Phil Flynn, an analyst at Price Futures Group.
On Wednesday U.S. data showed capital goods spending fell more than expected. Oil prices were also pressured as weak risk sentiment spread from the banking sector after First Republic Bank’s continued slump.
Analysts see weak refinery margins as a major contributor to the recent oil price decline, with oil broker PVM’s Tamas Varga pointing to heating oil and gasoil as “the main possible culprit for the outsized weakness”.
“Inventories in this product are somewhat reluctant to deplete, possibly due to resilient Russian exports,” Varga said.
Russia has increased exports of refined products despite an EU embargo and oil price cap, sources told Reuters.
Falling refinery profit margins could lead to cuts in runs and a further reduction in crude demand, said Ole Hansen, head of commodity strategy at Saxo Bank.
Backwardation in the Brent futures curve has flattened to just above $1.90 per barrel, having touched $4/bbl on April 12.
Backwardation, when prices for a front-month loading contract are higher than contracts for later loadings, typically indicates tight supply.
Markets will look for direction from the first quarterly print of euro zone gross domestic product growth, which is due on Friday. The data could affect monetary policy decisions by the European Central Bank when it meets on May 4.
(Reporting by Stephanie Kelly in New York ; Additional reporting by Rowena Edwards in London, Sudarshan Varadhan in Singapore and Katya Golubkova in Tokyo; Editing by Kirsten Donovan, David Goodman and David Gregorio)
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