Oil headed for a third straight monthly loss as traders awaited clues on China’s economic recovery, the latest guidance from cautious OPEC+ producers and Wednesday’s monetary policy decision from the Federal Reserve.
West Texas Intermediate slid below $77 a barrel on Tuesday to the lowest in almost three weeks, after losing more than 2 per cent the previous session.
Investors are positioning ahead of expected rate hikes this week from the US and European central banks, leading to risk-off sentiment in equities and a surge in the dollar. A strengthening dollar makes commodities priced in the greenback more expensive for holders of other currencies, curbing demand.
Oil’s latest move lower comes despite data showing a sharp rebound in China’s economic activity in January as its reopening continued and the Lunar New Year holiday spurred travel and spending.
In the US, the Federal Reserve is expected to raise interest rates at its first meeting of 2023 on Wednesday, though policymakers are seen dialing back the size of the increase with a quarter percentage point hike. That, and comments from Chair Jerome Powell, may signal that the bank is close to ending its tightening cycle.
- WTI for March delivery fell 1.5 per cent to $76.71 a barrel at 10:39 a.m. London time, taking its decline for the month to 4.4 per cent.
- Brent for March settlement traded down 1.3 per cent at $83.79 a barrel
- The more-active April contract eased 1.4 per cent to $83.32
- Brent’s prompt spread — the gap between its two nearest contracts — has widened further in backwardation ahead of March’s expiration Tuesday
- Money managers increased their net-long Brent positions to the largest in almost 11 months
On the supply side, an advisory committee of ministers from the Organization of Petroleum Exporting Countries and its allies will review production policy later this week, although no change is expected. The OPEC+ session comes just days before the European Union imposes a ban on Russian fuel purchases, accompanied by a price cap mechanism.
The impending sanctions make for an “uncertain supply outlook,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank. However, speculators have started to sell some recently-bought barrels, prompted by gains in the dollar ahead of Wednesday’s Fed meeting, he said.
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