Oil falls on concerns higher interest rates will limit demand

Houston — Oil edged lower on Tuesday on expectations that further interest rate hikes in the US, the world’s biggest oil user, will slow economic growth and limit fuel demand.

Brent futures for March delivery fell 43c to $79.22 a barrel, a 0.5% drop, by 5.22am GMT. US West Texas Intermediate crude fell 36c, or 0.5%, to $74.27 a barrel.

Both benchmarks climbed 1% on Monday, after China, the biggest oil importer and second-largest consumer, opened its borders over the weekend for the first time in three years.

Two US Federal Reserve officials this week expected the Fed policy rate — now at 4.25%-4.5% — to need to rise to a 5%-5.25% range to bring higher inflation rates under control.

“The expectation is more hawkish than what markets are pricing at the moment (4.75-5% range),” said Yeap Jun Rong, market analyst at IG in a note, adding that the speech from Fed chair Jerome Powell later on Tuesday could mirror the hawkish tone with some pushback as well.

Fed policymakers said fresh inflation data out later this week will help them decide whether they can slow the pace of interest rate hikes at their upcoming meeting, to just a quarter point increase instead of the larger jumps they used for most of 2022.

China also issued a second batch of 2023 crude import quotas, according to sources and documents reviewed by Reuters on Monday, raising the total for this year by 20% from the same time last year.

But analysts warned that China’s demand revival may play a limited role in driving up oil prices under the global economic downward pressure.

“The social vitality of major Chinese cities is rapidly recovering, and the restart of China’s demand is worth looking forward to. However, considering that the recovery of consumption is still at the expected stage, the oil price will most likely remain low and range-bound,” Haitong Futures analysts said.

Separately, US crude oil stockpiles are likely to have fallen 2.4-million barrels, with distillate inventories also seen slightly down, a preliminary Reuters poll showed on Monday.

Industry group American Petroleum Institute is due to release data on US crude inventories at 8.30pm GMT on Tuesday.

The energy information administration, the statistical arm of the US department of energy, will release its own figures at 2.30pm GMT on Wednesday.

Reuters