U.S. and European crude futures posted their biggest one-day drop so far this year as concerns about oversupply and a slowing economy led traders to sell. On Thursday (May 23), nymex west Texas intermediate (wti) July 2019 futures settled at $57.91 a barrel, down $3.51, or 5.7 percent, from the previous session and trading between $57.33 and $61.41. Ice July 2019 brent settled at $67.76 a barrel, down $3.23, or 4.5 percent, from the previous session, in a range of $67.02 to $70.97.

The sell-off in the oil market on Thursday was caused by a number of factors. Global economic data showed signs of slowing, with U.S. crude oil inventories rising to their highest level since July 2017 amid talk of a potential easing of tensions with Iran.

Investors are worried that a trade war could slow global growth, with the latest economic data from the United States, Europe and Japan showing weaker than expected strength. The preliminary Markit manufacturing PMI actually recorded 50.60 in May, falling far short of expectations of 52.70 and 52.60, the data showed. Market fears of a slowdown in us manufacturing were reinforced. Analysts believe the economy is losing pace as the massive stimulus from last year's tax cuts and spending increases wears off. Earlier, Germany's services and manufacturing PMI fell in May. The preliminary Markit manufacturing PMI is expected to rise slightly to 44.8 from 44.4 last month. The figure is still below 45, indicating that the German manufacturing sector remains very weak. Meanwhile, the preliminary eurozone PMI is expected to rise from 47.9 to 48.1. The outlook for Japanese manufacturers turned negative for the first time in six and a half years. A report from IHSMarkit on Thursday showed Japan's preliminary manufacturing PMI for may fell to 49.6.

Global crude inventories have also climbed in the past month, with EnergyAspects analysts estimating that global crude inventories rose by about 50 to 60 million barrels between early April and mid-may as refiners overhauled and cut back on processing, with most of the increase coming from the U.S. and Japan.

Demand for refined products was 2.7 per cent lower than a year ago, while us crude inventories rose to a nearly two-year high. The U.S. will enter the peak summer driving season in late may, which is also the peak period for gasoline demand, through labor day in early September. Analysts see U.S. refined oil demand struggling to grow ahead of the peak gasoline season, a bearish sign for the oil market.

Weak oil demand appears to be spreading from developed to developing countries, the forecasting firm OxfordEconomics warned on Thursday. Oxford university said in a research note: "surprisingly, diesel demand in China fell sharply in March. "" we are currently forecasting 4 percent growth in oil demand this year, but this is an extrapolation of significant growth for the rest of 2019."

EnergyAspects' RiccardoFabiani said Saudi Arabia is not expected to fill most of the supply gap with Iran and venezuela, and oil futures are expected to jump again in the coming months. Brent and west Texas intermediate are expected to rise to $83 and $73 a barrel, respectively, from their current levels of $70.50 and $61. The saudis are less worried about an imminent shortage of oil and more worried that adding supplies too soon could lead to a loss of control over prices, triggering a downward spiral.

Analysts say rising tensions in the Middle East, U.S. sanctions on Iran and venezuela, and uncertainty about Opec growth are all pushing prices higher, but escalating trade disputes are offsetting those bullish factors, raising concerns about slowing global growth and falling oil demand.

Reuters market analyst JohnKemp said Saudi Arabia was in no rush to increase oil production and exports, fearing increased supplies could lead to a restocking of inventories and lower prices. He said Saudi Arabia's top policy makers have reached a consensus with the United States to ensure that oil markets are adequately supplied in exchange for political and military protection and tough sanctions against Iran. But from an economic perspective, unless oil prices rise and there are signs of a shortage in the physical crude market, Saudi Arabia has little incentive to increase production and exports further.

The decline since last year has been largely due to U.S. sanctions on venezuela and Iran rather than a planned shutdown, rather than planned cuts in crude output by Opec and non-opec producers involved in the production cuts.