Crude oil was back on the defensive Thursday, falling as much as 3% in early-morning trade amid global economic uncertainty. The black commodity staged a massive relief rally on Wednesday after falling equally as hard Christmas Eve.
Rally Falls Short
Crude futures fell again Thursday after recovering from their pre-Christmas rout. West Texas Intermediate (WTI) for February delivery reached a session low of $44.92 a barrel on the New York Mercantile Exchange. It last traded at $45.15 a barrel, having declined $1.05, or 2.3%. WTI surged 8.7% on Wednesday.
Brent crude, the international futures benchmark, bottomed at $52.80 a barrel on London’s ICE futures exchange. It later recovered at $53.59 a barrel, down 88 cents, or 1.6%, from the previous close.
Energy prices failed to capitalize on a plunging U.S. dollar. The greenback’s DXY basket fell 0.5% to 96.54, offsetting Wednesday’s sharp rally.
Bear Market Fears
The threat of a prolonged bear market in crude and in stocks continues to weigh on traders’ sentiment. This comes despite a concerted effort by the Organization of the Petroleum Exporting Countries (OPEC) to rein in production levels. The cartel has not only slashed output targets, some of its members have speculated that further cuts may be warranted to rebalance the market.
It’s also not entirely clear whether OPEC’s proposed cuts will offset the surge in U.S. production. The world’s largest economy is pumping 11.6 million barrels per day of crude, which is more than both Saudi Arabia and Russia.
Traders still aren’t convinced that market fundamentals are improving, which means they still expect supply to outpace demand. This frame of reference follows downward revisions to global economic growth and signs of a broad cool down in consumption demand for key Asian markets.