Oil fell for a second day, dropping below $71 a barrel in New York, as the Federal Reserve’s plan for future interest-rate hikes derailed bets on commodities.
West Texas Intermediate slipped 0.6 per cent after sinking 1.5 per cent on Thursday – the biggest drop in four weeks – amid a broad sell-off in materials from copper to gold. Investors are dialing back popular trades linked to hotter 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 narrowly lower this week, supported by signs of robust consumption and falling stockpiles. With the rollout of coronavirus vaccines boosting mobility, especially in the U.S., Europe and China, demand optimism is reflected in still-bullish pricing patterns, with near-term oil contracts trading above those further out.
Oil has rallied this year on rebounding consumption coupled with restrained supply from the Organization of Petroleum Exporting Countries and its allies. That has tightened the market at a rapid clip, prompting traders and banks to forecast more gains in the second half. But prices have 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.
- WTI for July delivery fell 0.6 per cent to $70.65 a barrel at 7:00 a.m. New York time
- Brent for August settlement dropped 0.7 per cent to $72.57 a barrel
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. Citizens in the Islamic Republic vote Friday in a presidential election to pick a replacement for Hassan Rouhani, a moderate who helped shepherd the original 2015 deal.
© 2021 Bloomberg L.P.