Oil Trading Sentiment Turns Sour As Rates Hikes And Disappointing Stock Draws Kick In

But a tightening global supply remains a fundamental concern: File Image/Pixabay

Despite the optimism from some analysts that this week's oil rally spurred by tight global supplies may have legs, the latest rate hike from the U.S. Federal Reserve combined with a mild U.S. crude inventory draw was all it took to send skittish traders back to their bearish stance on Wednesday.

Brent settled down 72 cents, or 0.9 percent, at $82.92 per barrel, while West Texas Intermediate settled down 85 cents, or 1.1 percent, at $78.78.

As expected, the rate hike set the benchmark overnight interest rate in the 5.25-5.50 percent range, the highest level in 22 years, and traders were further spooked that the Fed in a statement allowed for the possibility of more hikes.

As for the drawdown, the Energy Information Administration reported a decline of 600,000 barrels last week compared to expectations of a 2.35 million barrel draw.

And while sentiment in the previous session was positive for China's vow to fortify its economy, on Wednesday the optimism turned into concern over whether that country would deliver the goods: Warren Patterson, head commodities strategist at ING, said, "We still need to wait for actual policies - the risk is that these policies fall short of expectations."

Hiroyuki Kikukawa, president of NS Trading, voiced a likely trajectory for trading in the near-term: "The market will continue to be in a tug-of-war between tightening global supply and fears of slowing demand due to the global economic slowdown."

With regards to supply, Bloomberg noted that "the price of gasoline is starting to surge globally [and] futures soared to a nine-month high in New York, sending shockwaves through to the pump as motor fuel markets have tightened worldwide….the resurgence in gasoline potentially poses a headache for central banks as policymakers grapple with the problem of how much more monetary tightening is needed to bring inflation to heel."

Also on Wednesday, analysts discussed Saudi Arabia's voluntary 1 million barrel oil supply cut, with some predicting it will taper the extra cut by restoring 250,000-500,000 barrels per day (bpd) in September.

James Davis, director of short-term global oil services at FGE, said, "There's ample evidence for Saudi Arabia to start unwinding the cuts in September: the market is screaming out for these barrels, and refiners are scrambling to get hold of them."

But Tamas Varga, an analyst at PVM Oil Associates Ltd., added, "The kingdom will want to see a protracted rise toward $90 a barrel and possibly improvement in Chinese economic data to start considering putting the 1 million barrels per day back into the market."