Investing.com -- Oil prices fell Tuesday on continued concerns a global economic slowdown will severely impact the outlook for fuel demand in the second half of the year.
By 08:40 ET (12:40 GMT), U.S. crude futures traded 0.9% lower at $78.04 a barrel, while the Brent contract fell 0.9% to $81.83 a barrel.
Both benchmarks rose over 1% on Monday, but this barely made a dent in the more than 5% falls last week which meant that nearly all of the gains seen after the Organization of Petroleum Exporting Countries and its allies announced a surprise reduction in output at the start of the month had disappeared.
The Bank of England, the European Central Bank and, in particular, the U.S. Federal Reserve are all expected to raise interest rates at their upcoming meetings in the coming weeks to combat inflation still at elevated levels.
However, fears are growing that the rapid tightening of monetary policy will stunt economic growth, potentially leading to a global recession later in the year and thus a severe hit to crude demand.
News that the First Republic, a U.S. regional lender, suffered from $100 billion in customer withdrawals last month has added to the tension, as these smaller banks could limit lending to preserve cash, again potentially stunting economic activity.
“The data suggest to us that the business cycle is continuing to slow and that consensus EPS expectations for 2023 remain materially too high,” analysts at Morgan Stanley said, in a note on Monday.
There was some positive news Tuesday, as bookings in China for trips abroad during the upcoming May Day holiday showed signs of recovery from strict COVID-19 pandemic rules.
Although the figures are still below pre-pandemic levels due to elevated fares for long-haul flights, investors are hopeful that travel will quickly recover to help support fuel demand in the world's largest oil importer.
Additionally, Iraq's northern oil exports have shown few concrete signs of an imminent restart after a month of standstill, and members of the OPEC+ producer group are starting a voluntary cut in May.
Traders will now focus on the size of the U.S. crude stocks, as industry body the American Petroleum Institute is due to release data on last week’s U.S. inventories later in the session, with a draw of about 1.7 million barrels expected.
The U.S. government's inventory report from the Energy Information Administration is due on Wednesday.