Oil prices tumble amid fears of an aggressive Fed rate hike

Oil prices edged lower on Thursday, but pared almost all losses after falling more than $4 earlier in the session as investors focused on the prospect of a bigger US rate hike later this month that could stave off inflation. But at the same time it could affect the demand for oil.

Brent crude futures for September closed down 47 cents, or 0.5%, at $99.10 a barrel and ended the third session in a row below $100.

US West Texas Intermediate crude for August delivery was down 52 cents at $95.78 a barrel, or 0.5%.

Both contracts hit lower levels on Thursday, close to February 23, the day Russia invaded Ukraine, with Brent hitting its lowest level since February 21.

The US Federal Reserve is seen intensifying its fight with a 40-year high inflation, with a rate hike of 100 basis-points this month, as a grim report of inflation pushed prices up. The Fed policy meeting is scheduled for July 26-27.

The Fed rate hike is expected to follow a similar move by the Bank of Canada that stunned the market on Wednesday.

“The Fed’s moves will have a major impact on the market as we watch them try to digest new economic data about inflation,” said John Kilduff, partner at Again Capital LLC in New York.

Oil prices have plunged over the past two weeks on concerns of a recession, despite a drop in exports of crude and refined products from Russia amid Western sanctions and supply disruptions in Libya.

Investors were also attracted to the dollar, which is often viewed as a safe-haven asset. The dollar index rose to a 20-year high on Wednesday, making oil purchases more expensive for non-US buyers, but retreated somewhat on Thursday. [USD/]

“Technical indicators are suggesting another round of fresh lows as the US dollar continues to rule the direction of oil prices,” said Jim Ritterbush, president of Ritterbush & Associates LLC in Galena, Illinois.

In Europe, signs for demand were also bearish, with the European Commission cutting its economic growth forecast and raising the expected inflation rate to 7.6%.

Concerns over curbing COVID-19 in several Chinese cities to rein in new cases of the highly infectious subtype have also kept a lid on oil prices.

China’s daily crude oil imports in June fell to their lowest level since July 2018, as refiners anticipated lockdown measures to curb demand, customs data showed on Wednesday.

Data from the US Energy Information Administration also points to a slump in demand, with supply of the product falling by 18.7 million barrels per day, the lowest since June 2021. Crude inventory increased, strengthened by another major release from strategic reserves.

US President Joe Biden will fly to Saudi Arabia on Friday, where he will attend a summit of Gulf allies and call on them to pump more oil.

However, excess capacity at the Organization of the Petroleum Exporting Countries is running low, most producers are pumping at maximum capacity, and it is unclear how quickly Saudi Arabia can bring the excess to market.

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