WTI, Brent Sink 5% After IMF Slashes Global Growth Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated losses in afternoon trade Tuesday after the International Monetary Fund downgraded global growth forecast through 2023, citing COVID lockdowns in China and conflict in Eastern Ukraine as main drivers behind economic slowdown and increased inflation, while a stronger U.S. dollar, along with expectations for domestic crude stockpiles to have increased last week, further weighed on front-month West Texas Intermediate futures.

At settlement, WTI May futures plummeted more than $5 to $102.56 barrel (bbl) ahead of its expiration Wednesday afternoon, with the next-month WTI contact sharply narrowing its discount to expiring contract to $0.51 bbl. The international crude benchmark for June delivery Brent contract declined to $107.25 bbl, down $5.91 on the session. NYMEX RBOB May contract dropped 13.07 cents to $3.2474 gallon, and the front-month ULSD contact fell 2.89 cents for a $3.8619 gallon settlement.

U.S. dollar extended its recent gains on Tuesday, advancing 0.2% against a basket of foreign currencies to the highest level since March 2020 at 101.964.

International Monetary Fund on Tuesday warned of significant economic slowdown this year for both advanced and developing economies amid surging inflation and disrupted trade flows in Europe and Asia. Global economy is now projected to expand at annualized rate of 3.6% in 2022 and 2023 compared with a 4.2% growth forecast in January.

The downward revisions reflect the indirect impact of the conflict in Eastern Europe and sanctions on Russia, with the region expected to suffer a heavy blow from disrupted supply chains and security issues. As a result, this year's growth outlook for the European Union was downgraded 1.1% to 2.8%, although all major economies in the bloc are likely to avoid recessionary stagflation.

In the United States, economic growth is seen expanding at an annualized rate of 3.7% this year, down from 5.7% seen in 2021. Aggregate output for advanced economies will take longer to recover to its pre-pandemic trend, said IMF in its blog this morning, with divergence between advanced and developing economies expected to deepen this year.

IMF further stressed the war increases the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies.

"Such a tectonic shift would cause long-run efficiency losses, increase volatility and represent a major challenge to the rules-based framework that has governed international and economic relations for the last 75 years," said IMF in a blog today.

Downbeat projections follow similar forecasts from the World Bank that has cut its global economic growth this year to 3.2% from 4.1% seen at the start of the year. The single largest factor in the reduced growth forecast was a projected contraction of 4% across Europe and Central Asia, according to World Bank President David Malpass, because of disruptions to trade and logistics brought about by the war.

In particular, Russia, ranked as the world's 11th largest economy prior to the Feb. 24 invasion, is seen contracting by 11% this year, which would mark the steepest deceleration of growth since 1994. Russia's Central Bank more than doubled its key interest rate to 20% on Feb. 28 as the first wave of Western sanctions hit before the bank trimmed rates to 17% on April 8. The bank is expected to lower the rate further at its next board meeting later this month to ease the flow of credit to Russian businesses and economy. While speaking to the Russian state legislatures, the head of Russia's Central Bank, Elvira Nabiulina, said this summer Russia will need to find new business models to overcome a supply shock created by the international sanctions.

"Russian manufacturers will need to search for new partners, logistics, or switch to production of products for previous generations," she added.

Separately, U.S. commercial crude oil inventories are projected to have increased by a sizable 2.2 million bbl for the week ended April 15, although estimates range from a decrease of 3 million bbl to an increase of 4.7 million bbl. Gasoline stockpiles are expected to have fallen by 800,000 bbl from the previous week, while stocks of distillates are seen to have decreased by 900,000 bbl.

Refinery use likely rose by 0.6% from the previous week to 90.6% of capacity.

The closely watched survey from the American Petroleum Institute is scheduled for release at 4:30 p.m. EDT, followed by official data from the U.S. Energy Information Administration Wednesday morning.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges