Oil plunges more than 5% after IMF statements

Oil prices fell more than 5% in volatile trading on Tuesday on concerns regarding demand following the International Monetary Fund cut its forecast for economic growth and warned of rising inflation.

The drop in prices came despite a drop in production from the OPEC + group, which produced 1.45 million barrels below its target levels in March, while Russian production began to decline in the wake of sanctions imposed by the West, according to a report from the producer alliance seen by Archyde.com.

Brent crude contracts fell $5.8, or 5.2 percent, to $107.28 a barrel, by 1600 GMT.

US West Texas Intermediate crude contracts fell $5.7, or 5.28 percent, to $102.50 a barrel.

Warnings of high inflation

The International Monetary Fund had cut the growth it expects for the global economy by regarding a full percentage point, attributing this to Russia’s war in Ukraine, and warned that inflation had become a “clear and present danger” to many countries.

The IMF said in its latest report on the outlook for the global economy that it expects the war to slow growth and increase inflation, noting that its expectations come in light of “unusually high uncertainty.”

Growth may slow and inflation rise due to more sanctions on the Russian energy sector, an expanding war, a sharper-than-expected slowdown in China and a new outbreak of the pandemic, while higher prices may cause social unrest.

The fund, which lowered its forecast for the second time this year, said it now expects global growth of 3.6 percent in 2022 and 2023, 0.8 and 0.2 percentage points lower than its forecast issued in January, given the direct effects of the war on Russia and Ukraine and its global repercussions.

“Global economic prospects have deteriorated sharply, in large part due to the Russian invasion of Ukraine,” said Pierre-Olivier Gorincha, economic advisor and director of the IMF’s Research Department, in a blog post published today with revised forecasts.

The war has exacerbated inflation that was already rising in many countries due to the supply and demand imbalances caused by the pandemic, and the recent lockdown measures in China are likely to cause new bottlenecks in global supply chains.

The war, which Russia describes as a “special military operation”, has caused a catastrophic humanitarian crisis in Eastern Europe, the fund said, displacing nearly five million Ukrainians to neighboring countries.

The economies of Russia and Ukraine are expected to contract sharply, while the growth forecast for the European Union, which depends heavily on Russian energy, for 2022 has been cut by 1.1 percentage points.

“The war is adding to the chain of supply shocks that have hit the global economy in recent years. Like seismic waves, its effects will be widespread… through commodity markets, trade and financial linkages,” Gorincha said.