Oil Sinks as Hawkish Fed Spooks Investors Overshadows EIA Data - Yahoo Finance

(Bloomberg) -- Oil settled below $70, erasing all of this week’s gains, as worries about high interest rates rattled investors.

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West Texas Intermediate tumbled more than 4% to its lowest close in a week as risk-off sentiment in wider markets overshadowed data showing a drop in US crude inventories. US crude inventories declined by about 4 million barrels last week, government date showed, but it was still not enough to counteract the negative mood, traders said.

Federal Reserve Chair Jerome Powell’s comments Wednesday that further rate increases were likely warranted to quell inflation were followed by rate hikes Thursday in England and Norway. The global tightening heightened investor concerns that the quest to slow inflation could result in an economic slowdown as consumers pull back on spending in a high interest rate environment.

“The continued central bank tilt toward a more hawkish monetary policy stance, growing demand concerns amid Chinese weakness and signs the US economy may soon record negative growth numbers has prompted {commodity trading advisors,} other systematic funds and discretionary traders to convincingly reduce length,”

The central bank’s hawkish tilt, along with Chinese demand weakness and US economic concerns, has prompted trend and momentum-driven traders to cut length, said Bart Melek, global head of commodity strategy at TD Securities, said in a note.

The price collapse also extended to timespreads. Brent crude’s prompt spread slumped to the weakest since late May, signaling robust supplies in the short term.

Prices have been largely rangebound since early May as pressure from higher interest rates and robust supplies vie with efforts by OPEC+ to support crude. Traders are now keenly focused on the outlook for the second half of the year, which could be tight even with sluggish Chinese growth, according to the International Energy Agency.

“The current negativity may very well be based on fears of the worst-case scenario, rather than the likely facts on the ground for the balance of the year,” Melek said. TD Securities still expects US crude futures to approach $90 a barrel in the latter part of the year, he said.

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