U.S. oil benchmark extends drop below $80 a barrel on recession fears

Oil futures, dogged by a rising dollar and recession fears, extended a pullback that’s taken the U.S. benchmark back below the $80-a-barrel threshold, denting gains scored after OPEC+ announced surprise production cuts earlier this month.

Price action

• West Texas Intermediate crude for May delivery
  CL.1,
  -1.52%

  CLK23,
  -1.52%
  fell $1.26, or 1.6%, to $77.90 a barrel on the New York Mercantile Exchange. June WTI
  CL00,
  -1.58%

  CLM23,
  -1.58%,
  the most actively traded contract, was off $1.26, or 1.6%, at $77.98 a barrel.

• June Brent crude
  BRN00,
  -1.48%

  BRNM23,
  -1.48%,
  the global benchmark, declined $1.18, or 1.4%, to $81.94 a barrel on ICE Futures Europe.

• Back on Nymex, May gasoline
  RBK23,
  -1.26%
  fell 1% to $2.62 a gallon, while May heating oil
  HOK23,
  -1.27%
  dropped 1.3% to $2.524 a gallon.

• May natural gas
  NGK23,
  +0.77%
  rose 0.6% to $2.236 per million British thermal units.

Market drivers

Crude surged in early April, leaving a large upside gap on the daily charts, after Saudi Arabia and its OPEC+ allies announced cuts of around 1.15 million barrels a day beginning in May and running through the end of the year, while Russia said it would extend cuts of 500,000 barrels a day through year-end.

Crude has stumbled this week, with a rebound by the U.S. dollar and concerns that tightening by the Federal Reserve and other major central banks could spark a global downturn or recession exerting downward pressure. The ICE U.S. Dollar Index
DXY,
+0.14%,
a measure of the currency against a basket of six major rivals, has bounced around 0.3% this week. A stronger dollar makes commodities priced in the unit more expensive to users of other currencies.

Futures continue to test the gap on the chart left by the OPEC+-inspired rally (see chart above).

“Now it’s a question of whether that gap will be filled, with the high from the Friday before falling just shy of $76 in WTI and $78 in Brent. That would require another drop of around 3% but only take the price back to the middle of the range oil was trading in for months” before the collapse of Silicon Valley Bank in March, said Craig Erlam, senior market analyst at Oanda, in a note.