Oil Prices Nosedive As Rate Hike Fears Once Again Grip Traders
But some analysts cling to expectations that demand will soon soar: File Image/Pixabay
Recent gains and an emerging sense of resiliency among crude traders despite headwinds were dashed on Tuesday as fears of U.S. bank rate hikes returned full force and sent oil plummeting by $3 per barrel.
After Federal Reserve chair Jerome Powell told Congress the Fed would likely need to increase rates more than expected in light of recent strong economic data, Brent settled down $2.89 at $83.29 per barrel and West Texas Intermediate settled down $2.88 at $77.58 per barrel.
Powell's remarks not only pushed most commodities lower but also boosted the U.S. dollar by over 1 percent to a three-month high, which also made oil more expensive for buyers paying with other currencies.
Iris Pang, chief economist for Greater China, ING
Demand from there should keep weakening
Contributing to the sudden bearish sentiment in trading circles was a reported contraction in China's exports and imports in January and February, including those of crude oil, despite that country abandoning its zero tolerance Covid policy earlier this year.
Iris Pang, chief economist for Greater China at ING, said, "Given the high inflation in the U.S. and Europe, demand from there should keep weakening, which also dampens processing demand in China."
Stewart Glickman, deputy director of equity research at CFRA Research, was more outspoken with his take on Powell's comments: he said, "If the Fed decides that we're going to strangle inflation until it cries uncle, and by so doing jack up interest rates to the point where there is pain across the economy, that's not good for GDP.
"Oil demand is correlated with GDP, so that would be bad for oil prices."
But the fundamentals outlook remained unchanged for crude and was reiterated on Tuesday by the U.S. Energy Information Administration in its Short Term Energy Outlook, which predicted that domestic crude production and demand will rise in 2023 as Chinese travel drives consumption.