Oil Dips As Nervous Traders Re-focus Attention On Rate Hikes

Meanwhile, Russia may not deliver its promised August output cutback: File Image/Pixabay.

Stuck in a  perpetual mire of acting on interest rate hike concerns one day and switching focus to tightening global supply the next, crude traders on Monday caused oil prices to dip as they contemplated impending hikes in the U.S.

Dennis Kissler, senior vice president of trading at BOK Financial, justified their behaviour by remarking, "Traders are very nervous about higher interest rates, which could kill demand very quickly."

Even though banks globally have made it clear for months now that further hikes were inevitable, concerns on Monday were stoked after Mary Daly, president of San Francisco Federal Reserve, repeated her earlier message that two more rate hikes in 2023 will be needed to bring down inflation.

That view was seconded by Loretta Meste, president at the Cleveland Fed, falling in line with expectations that a solid U.S. employment report including strong wages will be enough for the Fed to enact another hike later this month.

As a result, Brent settled down 78 cents, or 1 percent, at $77.69 per barrel, and West Texas Intermediate fell 87 cents, or 1.2 percent, at $72.99.

But the dip was limited for two reasons: some traders were said to have engaged in profit-taking after last week's gains; and the lingering effect of pledges of supply cuts from Saudi Arabia and Russia contributed to the sentiment that, despite headwinds, supply is contracting quickly.

Scott Shelton, an energy specialist at ICAP, offered a third reason for Monday's tepid trading: he said that oil trading has remained "extremely quiet" resulting in a market that's "defenseless to the flows seen on a daily basis and keeping volatility quite high despite a lack of interest"; also, trading flows remain typically thin during the summer.

In other oil related news on Monday, Reuters estimated that Russia will have more refining capacity offline this month than initially planned due to extended periods of maintenance, meaning that Moscow may not deliver the 500,000 barrels per day (bpd) of crude export cut it had promised for August.

Charles Kennedy, an analyst for Oil Price.com, pointed out that May and June "saw more refining capacity offline than in July, due to maintenance, but Russia's crude oil shipments in those months reached multi-month highs and were much higher than in February, the baseline for its 500,000-bpd production cut."