Oil fell as investors weighed the Federal Reserve policy outlook after another hike and digested a mixed snapshot of US supply and demand.
West Texas Intermediate futures slid toward $70 a barrel, though they traded off the intraday low as the dollar eased. Fed Chair Jerome Powell advised that more tightening may be in store after Wednesday’s 25 basis-point increase and said officials don’t expect to be cutting rates this year. His comments came less than two weeks after the most severe banking crisis since 2008.
The appeal of risk assets including commodities was also bruised as Treasury Secretary Janet Yellen said regulators weren’t looking to provide “blanket” deposit insurance without working with lawmakers, putting the focus back on the fragility of financial institutions. Equities fell at the European open.
Crude is headed for the steepest first-quarter drop since 2020, when the pandemic hammered demand. The slump has been driven by concerns about a potential US recession, robust Russian oil flows despite sanctions, and the banking turmoil. Still, there are signs of strong demand in Asia as China recovers after ditching its Covid Zero policy late last year.
“Macroeconomic developments remain firmly in the driving seat and will continue to dictate the short-term direction” of oil, said Ole Sloth Hansen, head of commodity strategy at Saxo Bank. But with a “weaker dollar and most of the selling/long liquidation already done, the downside risk may be limited.”
Prices
- WTI for May delivery fell 1.1 per cent, snapping a three-day gain, to trade at $70.11 a barrel at 10:35 a.m. London time.
- Brent for May settlement slipped 0.9 per cent to $75.98 a barrel.
- Both Brent and WTI’s second-month implied volatility fell for a third session on Wednesday.
As traders weighed the Fed’s likely course of action over 2023, the dollar eased Thursday, offering support to raw materials including oil that are priced in the currency. The weakening greenback should deliver a “strong tailwind for commodity markets,” according to Australia & New Zealand Banking Group Ltd.
Meanwhile, US crude stockpiles expanded to the highest since May 2021 as strong builds on the Gulf Coast outweighed a decline at the key storage hub of Cushing, Okla., Energy Information Administration data showed. Still, oil exports jumped to a record, and gasoline holdings shrank again.
© 2023 Bloomberg L.P.
