Wednesday's main crude trading driver demonstrated that good news by any measure can be turned into a source of major worry for jittery players: good U.S. economic figures caused speculation that the Federal Reserve will continue to enact rate hikes – something the Fed in fact has long promised – and as a result oil prices plunged by 3 percent.
Brent settled down $2.45, or 3 percent, at $80.60 per barrel, while West Texas Intermediate settled down $2.41, also 3% percent, to $74.05 per barrel.
The latest source of consternation regarding the Fed was minutes released from a Jan.31-Feb.1 meeting of policymakers in which they agreed rates would need to move higher to combat inflation but that the shift to smaller-sized hikes would let them calibrate more closely with incoming data.
The minutes stated, "Almost all participants agreed that it was appropriate to raise the target range of the federal funds rate 25 basis points."
Giovanni Staunovo, analyst at UBS, said of Wednesday's trading activity, "While better U.S. economic data should mean better oil demand, the concern is that this forces the Fed to over-tighten monetary policy to bring inflation under control; this is also supporting the U.S. dollar, which is not of help for oil."
Presumably adding to investors' worries were sources citing American Petroleum Institute figures that showed U.S. crude stockpiles rose by 9.9 million barrels last week, compared to expectations for a 2.1 million barrel increase.
However, crude demand at this time of year is typically lower as major refineries are deep into maintenance season, with some 1.44 million barrels per day (bpd) of refining capacity expected to be offline in the week ending March 3.
Adding to the gloom was Morgan Stanley, whichon Wednesday trimmed its price forecasts, projecting that the market will be oversupplied in the first quarter of this year and balanced in the second quarter, before edging into a deficit in the second half.
Dennis Kissler, senior vice president of trading at BOK Financial Securities, echoed the sentiments of his colleagues by remarking, "Crude remains trapped in a choppy trading pattern, with rising interest rates, and thoughts of a slowing economy keeping downside pressure."