Oil settled below $70, erasing all of this week’s gains as worries about high interest rates rattled investors.
West Texas Intermediate fell more than 4% to its lowest close in a week as risk-on sentiment in broader markets overshadowed data showing a drop in US crude inventories. U.S. crude stockpiles fell by about 4 million barrels last week, government data showed, but it was still not enough to offset negative sentiment, traders said.
Federal Reserve Chairman Jerome Powell’s comments on Wednesday that more rate hikes were likely warranted to curb inflation were followed by rate hikes in England and Norway on Thursday. The global tightening added to investor concerns that the quest to slow inflation could lead to an economic slowdown as consumers cut spending in a high-interest-rate environment.
“The central bank’s continued tilt toward a more aggressive monetary policy stance, growing demand concerns amid Chinese weakness, and signs that the US economy could soon post negative growth numbers have commodity trading advisors,} other systematic funds and discretionary traders reduce duration convincingly,” Bart Melek, global head of commodity strategy at TD Securities, said in a note.
The price collapse has also extended to time frames. The fast spread for Brent crude fell to its weakest level since late May, indicating robust near-term supply.
Prices have been largely flat since early May as pressure from higher interest rates and robust supplies rival OPEC+ efforts to support crude. Traders are now very focused on the outlook for the second half of the year, which could be tight even with slow growth in China, according to the International Energy Agency.
“Current negativity may very well be based on worst-case scenario fears, rather than the likely facts on the ground for the balance of the year,” Melek said. TD Securities still expects U.S. crude futures to approach $90 a barrel in the latter part of the year, he said.
Prices:
- WTI for August delivery was down 4.2% at $69.51 a barrel at 1:40 pm in New York.
- Brent for August settlement fell 3.9% to $74.14 a barrel.
