Oil declined for a third session as the US Federal Reserve’s hawkish signals heightened the risk of slower economic growth as millions of barrels of petroleum from strategic reserves were released into the market.
The West Texas Intermediate crude oil price fell slightly on Thursday, finishing near $96 a barrel. For the first time since March 17, Brent fell below $100 for a brief period. Prices have eased off following the International Energy Agency’s news that U.S. allies will deploy 60 million barrels from stocks, while they are still subject to significant intraday swings. The administration of US President Joe Biden had earlier announced the release of 180 million barrels from its own stockpiles.
Aside from the supply picture, oil traders were weighing the implications of the Federal Reserve’s hawkish tilt, as policymakers reduce the support they provided to combat skyrocketing inflation. For the seventh day in a row, the dollar climbed, making commodities priced in the currency less appealing to investors.
According to Ed Moya, senior market analyst at Oanda, a consistent stream of hawkish rhetoric from Fed speakers suggests the central bank could be highly active in tightening policy at the coming policy meetings. “All hazardous assets, including commodities like oil, might be dragged down by this.”
Traders were also keeping a careful eye on the number of barrels being moved from Russia. So far, buyers appear to be picking up barrels, putting downward pressure on prices. Russian Sokol crude cargoes from the Far East have sold out for the coming month.
Over the last six weeks, oil has been roiled by severe volatility as a result of Russia’s invasion of Ukraine. As a result of the war, Washington and its allies have been attempting to economically penalize Moscow while also attempting to contain the rise in oil costs that is stoking already-high inflation. Japan announced on Thursday that it will release 15 million barrels of petroleum reserves as part of a coordinated effort by the US and its allies to keep costs down.
Despite recent market volatility, the basic picture of constrained supplies remains, according to Stewart Glickman, an energy equity analyst at CFRA Research in New York. “The inability to replace Russian oil is really weighing on markets,” says the IEA, adding that “these are short-term bandages that the IEA and the US are trying to apply on a problem that might last a long time.”
- West Texas Intermediate for May delivery fell 20 cents to settle at $96.03 a barrel in New York.
- Brent for June settlement fell 49 cents to settle at $100.58 a barrel.
In addition to rate hikes, the Federal Reserve announced that it will cut its bond holdings by up to $95 billion each month. President of the Federal Reserve Bank of St. Louis, James Bullard, has stated that he wants a substantial increase in interest rates to combat the highest inflation in four decades.
Another factor weighing on global demand is that China, the world’s largest oil importer, has been battling a viral outbreak that has resulted in lockdowns, especially in Shanghai. Tankers carrying 22 million barrels of Russian, Iranian, and Venezuelan oil are building up off the coast as officials deal with the problem, according to Kpler. At the same time, as consumers seek alternative sources, Russia’s oil output fell to its lowest level in over two years in early April.
While oil markets are still in backwardation, a bullish pattern in which shorter-term futures are more costly than longer-term contracts, key differentials have narrowed significantly in recent days as traders reevaluate the outlook. Brent’s prompt spread was 50 cents a barrel in backwardation, down from $3.20 a week ago.
For the first time since early January, the worldwide benchmark dipped below the important 50-day moving average in the previous session.