Oil prices plunge after IMF cuts global growth forecast

Oil prices plunged by more than five per cent Tuesday as investors worried about a drop in demand after the International Monetary Fund cut its global growth forecast.

Around 1530 GMT (2100 IST) the price of Brent crude, the main international oil contract, was down 5.4 per cent to $107.11 per barrel, while the main US oil contract, WTI, fell 5.5 per cent to $102.30.

European stocks were all down at close, as traders fretted over the IMF's pessimistic outlook for 2022.

Also Read | IMF slashes global growth forecasts amid Ukraine crisis

The IMF sharply downgraded its 2022 global growth forecast to 3.6 per cent in its latest outlook report Tuesday, 0.8 percentage points lower than its previous estimate in January.

Energy prices are surging, debt levels are rising and shortages remain acute, the IMF noted, as multiple crises including the Ukraine war and coronavirus pandemic fuel an acceleration of inflation.

"The economic effects of the war are spreading far and wide – like seismic waves that emanate from the epicentre of an earthquake," IMF chief economist Pierre-Olivier Gourinchas said in the report.

Also Read | IMF pegs 'fairly robust' 8.2% India growth in 2022

The downgrade was sharper for the eurozone, which is now expected to grow by 2.8 per cent instead of 3.9 per cent.

Michael Hewson, chief market analyst at CMC Markets UK, said Tuesday's "sharp decline in oil prices offsets concerns that the start of a renewed Russian offensive on the Donbass region (in the east) could increase the pressure on the EU to look at a complete embargo on Russian oil and gas".

Wall Street was up in late morning trading, with the three major indices reporting rises of more than one per cent, a marked change from Monday when markets were lower over worries about higher interest rates.

Hewson noted that the IMF's cut to the US growth forecast, from 4.0 per cent to 3.7 per cent, was more modest than that to the eurozone.

Asian markets diverged as the region weighed the impact of Covid lockdowns in China, analysts at Charles Schwab investment firm said in a note.

China's economic growth accelerated in the first quarter of the year to 4.8 per cent, official data showed Monday, but the government warned of "significant challenges" ahead.

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