Oil Falls as Possible Rate Hikes Stir Recession Fears

Oil fell alongside broader markets as Federal Reserve Chair Jerome Powell said interest rates will rise more than earlier expected, overshadowing concerns of tightening fuel supplies.

West Texas Intermediate futures dropped near $88 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. Traders shied away from risky assets, such as equities and crude, while the dollar jumped, making commodities priced in the currency less attractive. 

Major central banks are seeking to tame rampant inflation. Fears of a recession stemming from the rate hikes have overtaken signs of a tightening fuel market to pressure futures lower. US gasoline stockpiles fell to the lowest since 2014 and distillate supplies on the East Coast remain stuck at record lows for this time of year.

“The correlation between daily moves in equity and energy prices has ticked higher in the past couple of weeks so some of that negative outlook seems to be spilling over into the energy arena as well,” analysts at wholesale-fuel distributor TACenergy wrote in a note to clients.

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 the of supply heading into winter, with OPEC+ implementing sizable output cuts and the European Union set to sanction Russia crude flows.

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.

Prices:

  • WTI for December delivery declined $1.83 to settle at $88.17 a barrel in New York.
  • Brent for January settlement slid $1.49 to $94.67 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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