Oil slumps as US rate hike fears outweigh China data

Oil prices dropped sharply on Wednesday as potential US interest rate hikes that could slow growth and curb oil consumption outweighed strong Chinese economic data and declining US inventories.

Brent crude futures shed $1.70 to $83.07 a barrel by 9.29am GMT while West Texas Intermediate fell $1.64 to $79.22.

The Federal Reserve is likely to have one more interest rate rise in store, Atlanta Fed President Raphael Bostic said on Tuesday, as the central bank continues to battle inflation.

Markets have priced in an 86% chance of the Fed raising rates by 25 basis points at its May policy meeting.

European Central Bank officials are also wary of inflation and have suggested that interest rates need to continue rising.

“Figures released yesterday pointing to an accelerating Chinese economy failed to provide a launch pad for energy prices to rally,” PVM Oil analyst Stephen Brennock said.

The economy of top crude oil importer China grew by a faster than expected 4.5% in the first quarter and the country’s oil refinery throughput rose to record levels in March, data shows.

US crude stocks, meanwhile, fell by about 2.68-million barrels last week, market participants said on Tuesday, citing American Petroleum Institute figures. Petroleum and distillates inventories also fell last week, they said.

The official inventory report by the Energy Information Administration, the statistical unit of the US department of energy, is due to be released at 2pm GMT on Wednesday.

Asian refiners have continued to snap up Russian crude in April, adding pressure on oil benchmarks. India and China have bought the vast majority of Russian oil so far in April at prices above the Western price cap of $60 a barrel, according to traders and Reuters calculations.

Reuters