Oil Rally Ends As Banks Declare They Will Continue Rate Hikes

Meanwhile, analysts and data paint conflicting views of Chinese demand recovery: File Image/Pixabay

Even though the realities of banks tightening their purse strings to combat inflation has been ever present, it took another reminder from the institutions that they were staying on course for oil traders on Thursday to end the commodity's three-day rally.

West Texas Intermediate fell $1.17 to settle at $76.11 per barrel after the European Central Bank and its U.S. equivalent stated that more rate hikes are coming down the turnpike; this was accompanied by a section of the Keystone Pipeline resuming function, which fully restored the bearish sentiment in trading circles.

Brent declined by $1.49 to settle at $81.21 per barrel.

Tina Teng, analyst at CMC Markets, remarked, "The oil price is under pressure today as the Fed's hawkish guidance for its monetary policy sparked renewed concerns about economic growth, lifting the U.S. dollar and sending commodity prices down."

Adding to the gloom and despite much media hoopla over China relaxing its zero-tolerance Covid policies was the outlook posted by OilChem that demand would face a bumpy recovery: analyst Zhang Xiao said, "People's will to go out may still be conservative in the next one or two months as most cities have yet to see big outbreaks.

"The market will wait at least till March to see a recovery in gasoline demand."

Indeed, the draconian Covid measures have taken their economic toll: in November factory output slowed and retail sales extended declines, said to be the worst readings in six months.

Slightly more optimistic was Mike Muller, head of Asia at Vitol Group, who said demand in China may recover as early as the second quarter and that there will probably be a "Nike-swoosh or J-shaped" rebound in transport-fuel usage.

But China's demand seems more resilient than analysts (especially Xiao) give credit for: government and private corporation figures show that the volume of trucks navigating China rose to 7.62 million on Wednesday, 7 percent higher than a month ago, and domestic flights by China Eastern Airlines Corp. rose to 1,379 on Dec. 12, more than double the figure on Dec. 1.

Also, with regard to the resumption of the Keystone Pipeline, the return of oil to the market that caused traders to sell their oil positions on Thursday was presumably countered by tentative signs that key oil exports from Russia from the Asian port of Kozmino are slowing due to the sanctions against the former Soviet Union by the European Union.

Tanker tracking data compiled by Bloomberg showed that in the 10 days since the sanctions began, 4.4 million barrels have been loaded onto tankers at Kozmino, which is half the amount of a month ago, and with nothing due to load on Thursday.

Ship brokers and traders also said that said that crude sellers are struggling to secure tankers for cargoes purchased at more than $60 per barrel.