West Texas Intermediate futures slipped 1% after the biggest decline in four weeks on Thursday amid a broad selloff in materials from copper to nickel. Investors are dialing back popular trades linked to inflation after the Fed signaled it would raise rates twice by the end of 2023.
Despite the retreat, the U.S. crude benchmark is only marginally lower this week, supported by signs of robust consumption and falling stockpiles. Goldman Sachs Group Inc says oil is its “highest conviction” bullish call in commodities, while Morgan Stanley hiked its price forecasts by $10 a barrel for the second half of the year.
Oil has rallied this year with widespread vaccinations boosting demand, while the Organization of Petroleum Exporting Countries and its allies have been restrained in returning shuttered supply. That has tightened the market at a rapid clip, prompting trading houses and banks to forecast even higher prices. But oil has eased in recent days with a stronger dollar making commodities priced in the currency more costly.
“The prospect of earlier interest-rate rises propelled the dollar higher and provided traders with an excuse to take profit,” said Stephen Brennock, an analyst at brokerage PVM Oil Associates.
Investors are also tracking the situation in Iran. Talks between Tehran and world powers to revive a nuclear accord and potentially allow a resumption of official crude flows have yet to bridge remaining differences. Iranians are voting Friday in a presidential election to pick a replacement for Hassan Rouhani, a moderate who helped shepherd the original 2015 deal.