(Bloomberg) — Oil extended losses for a third session as investors weighed the prospect of further monetary tightening to combat surging U.S. inflation and the potential for more virus lockdowns in China.
WTI for July delivery dropped 1.7 per cent to $118.60/bbl at 9:54 a.m. in London. Futures rose 1.5% last week. Brent for August settlement lost 1.6% to $120.09/bbl.
U.S. inflation accelerated to a fresh 40-year high last month and traders are now betting the Federal Reserve will raise rates by three quarters of a percentage point at least once in its next three meetings. China is starting to re-impose virus curbs as cases rise, just weeks after major easing in key cities such as Shanghai.
Oil is still up almost 60 per cent this year as rebounding economic demand coincided with a tightening market following Russia’s invasion of Ukraine. The war has fanned inflation, driving up the cost of everything from food to fuels and some analysts are calling it the most bullish market they’ve ever seen. For now though, those drivers are taking a back seat as traders anticipate a sharp hiking of interest rates by the Federal Reserve.
“This week will be one of those weeks when oil fundamentals take a backstep as the global selloff continues to dominate the headlines,” said Keshav Lohiya, founder of consultancy Oilytics, adding that U.S. inflation data “continues to spook the macro markets.”
Goldman Sachs Group Inc. reiterated on Friday that energy prices need to climb further for Americans to start cutting consumption. Consumer resilience is “still sufficient to absorb the higher prices at the pump,” Damien Courvalin, a senior commodity strategist at the bank, said on Bloomberg Television. U.S. retail gasoline prices have repeatedly broken records and recently hit $5 a gallon.
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