Oil falls more than 2% on demand worries as Fed hikes rates

Published On: June 16, 2022Categories: Alternative Investments1.5 min read

Brent crude futures for August settled down $2.7, or 2.2%, at $118.51 a barrel and U.S. West Texas Intermediate crude for July fell $3.62, or 3.04%, to $115.31 a barrel

Oil prices fell more than $3 on Wednesday as markets worry about a fall in demand after the Federal Reserve hiked interest rate by three-quarters of a percentage point.

Brent crude futures for August settled down $2.7, or 2.2%, at $118.51 a barrel, having fallen as low as $117.75. U.S. West Texas Intermediate crude for July fell $3.62, or 3.04%, to $115.31 a barrel, after dropping to a low of $114.60.

The biggest hike by the U.S. central bank since 1994 also sent dollar higher with the dollar index rising to its highest since 2002. A stronger greenback makes U.S. dollar-priced oil more expensive for holders of other currencies, curtailing demand.

Meanwhile, U.S. crude production, which has been largely stagnant over the last few months, edged up 100,000 barrels per day last week to 12 million bpd, its highest level since April 2020, data from the Energy Information Administration showed.

A little bit of that uptick in domestic production maybe the first sign of more to come there, said John Kilduff, a partner at Again Capital LLC.

The data also showed a build in U.S. crude stocks and distillate inventories, while gasoline posted a surprise drawdown on the back of the summer driving season.

Drivers around the world were tolerating record-high prices for road fuels, data showed.

The European Central Bank promised fresh support and a new tool on Wednesday to temper a market rout that has fanned fears of a new debt crisis on the euro area’s southern rim but appears to have disappointed investors looking for bolder steps.

Adding to demand woes, China’s latest COVID outbreak has raised fears of a new phase of lockdowns.

Higher oil prices and weakening economic forecasts are dimming futures demand prospects, the International Energy Agency said.

But persistent concerns about tight supply meant oil prices were still holding near $120 a barrel.

About the Author: Jonathan Adams

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