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Oil fell after Federal Reserve Chair Jerome Powell said interest rates will go higher than earlier projected, overshadowing tightening supply.
West Texas Intermediate futures dropped below $89 a barrel after rising 4% over the previous two sessions. Powell said it’s “very premature to be thinking about pausing” after the Fed hiked rates again by 75 basis points. The dollar jumped, making commodities priced in the currency less attractive.
Major central banks are seeking to tame rampant inflation, which is weighing on energy demand. Bearish sentiment stemming from the rate hikes has offset a tightening fuel market, with US gasoline stockpiles falling to the smallest since 2014 and distillate supplies on the East Coast around record seasonal lows.
“Rising anxiety about stalling growth will inevitably impact global oil demand and another downward revision in the next set of forecasts is not a far-fetched idea,” said Tamas Varga, an analyst at brokerage PVM Oil Associates. “The battle between bearish demand outlook and bullish supply expectations intensifies.”
An uncertain outlook for China, the world’s biggest crude importer, has added to headwinds for oil. The country’s top health body said the nation’s zero-tolerance approach remains the overall strategy to fighting Covid-19 after unverified social media posts buoyed hopes the policy would be eased.
Oil has lost almost a third of its value since early June as concerns over a global economic slowdown filter through the market. Still, there is uncertainty about supply heading into winter, with OPEC+ implementing sizable output cuts and the European Union set to sanction Russia crude flows.
Prices:
- WTI for December delivery declined 1.5% to $88.69 a barrel at 10:16 a.m. in London.
- Brent for January settlement slid 1.1% to $95.06 a barrel.
The Middle Eastern Dubai crude benchmark has been pressured in recent days too. Brent’s premium over Dubai swaps surged to its biggest since June on Wednesday. That came as an Indian refiner was said to consider selling cargoes of Middle Eastern crude, though regulatory restrictions prevented the deal.
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