Oil falls most in a year as economic storm clouds imperil demand

Oil plunged the most in more than a year as early signals that demand is flagging exacerbated markets’ unease over the prospect of a punishing stretch of high interest rates.

West Texas Intermediate slumped 5.6 per cent to settle below US$85 a barrel, the biggest one-day drop since September 2022. Despite signs of a tight market currently, the prospect of more supplies in the future, as well as technical selling and algorithm-driven traders rushing to exit, pushed the price decline into a full-blown rout. Crude’s plummet drove the Bloomberg Commodity Spot Index to the biggest tumble since March, when the U.S. banking crisis roiled markets.

After rallying about 40 per cent from mid-June to late September, crude has reversed course over the past week amid a drumbeat of commentary that the surge was overdone. The retreat has come against a backdrop of rising angst about interest rates and the economy that has rattled equity and bond markets in recent weeks. U.S. government figures on Wednesday showing gasoline demand dropped to the lowest seasonal level in 25 years only added to the gloom.

“There is no doubt that having a horrible demand print, in a period where the world is worrying about demand yet again, compounded the selling pressure today,” said Greg Sharenow, who manages a portfolio focused on energy and commodities at Pacific Investment Management Co.