Oil drops further amid concern about rates
London — Oil fell for a third day on Thursday as fear about the economic effect of rising interest rates offset a surprise drop in US crude inventories and hope for Chinese demand.
US Federal Reserve chair Jerome Powell’s comments this week on the likelihood that interest rates will need to be raised more than previously expected in response to recent strong data, continued to weigh on oil and other risk assets because of the potential effect on economic and demand growth.
Brent crude fell by 34c, or 0.4%, to $82.32 a barrel by 9.02am GMT, while US West Texas Intermediate crude slipped by 11c to $76.55. Both benchmarks fell between 4% and 5% over the previous two days.
“Fears of recession are conspicuously rising,” said Tamas Varga of oil broker PVM.
Oil prices on Tuesday registered their largest daily fall since early January after Powell’s comments.
“Oil prices are still under the influence of Powell’s hawkish tone,” said Suvro Sarkar, lead energy analyst at DBS Bank, pointing to the possibility of a rate hike of 50 basis points (bps) rather than 25bps.
There was some support for oil from Wednesday’s official figures on US crude inventories, which fell 1.7-million barrels last week to end a 10-week run of increases. That compared with the expectation in a Reuters poll for a 400,000-barrel increase.
Oil has also drawn support from the expectation of rising Chinese demand.
While China’s crude oil imports in the first two months of 2023 fell 1.3% year on year, analysts pointed to accelerating imports in February as a sign that fuel demand was rebounding after Beijing scrapped Covid-19 controls.