Oil Plummets 3% On U.S. Interest Rate Fears, Ongoing Covid Rates In Asia

But evidence suggests it's business as usual for many Asian nations: File image/Pixabay

Skittish crude traders on Wednesday augmented their concern about rising Covid rates in Asia with a new fear, that the U.S. Federal Reserve could slow economic growth with interest rate hikes, and as a result oil prices plummeted by over $2.

After minutes of the central bank's April meeting showed that some Fed officials appeared ready to consider changes to monetary policy based on continued rapid progress in economic recovery, Brent fell $2.05, or 3 percent, to settle at $66.66 per barrel.

West Texas Intermediate fell $2.13, or 3.3 percent, to settle at $63.36.

But as has been the case with recent price declines, there is little evidence to support the contention that demand is down: indeed, U.S. data on Wednesday showed a smaller-than-expected 1.3 million barrel build in crude inventories, a bigger-than-expected 2.0 million barrel decline in gasoline stockpiles and a 5 percent increase in gasoline use to pre-pandemic levels.

It's also debatable whether demand decline in Asia has actually come to pass or is as significant as some analysts fear: in the Covid epicentre of India, for example, business seems to be continuing as usual, with the country's refiners reportedly preparing for substantial purchases of oil from Iran if and when the U.S. sanctions against the Islamic republic are lifted.

Also, Alexander Novak, deputy prime minister of Russia, on Wednesday said even though some Asian countries were recording a growing number of Covid infections, "There definitely is a deficit on the market which helps reduce an [oil stocks] excess left from last year, to gradually bring it to the level of a five-year average.

"The oil prices are stable,,,meaning that the market is balanced with a slight excess of demand over supply."

For his part, Mark Mobius, founding partner of Mobius Capital Partners, said he likes Indian stocks even though Covid cases in the country have surged, because "this is going to pass."

Meanwhile, a wave of strong oil buying by processors in China and Japan has lifted spot premiums in Asia's physical market, contributing to signs of rising global demand (earlier this week, China's Rongsheng Petrochemical Co. alone purchased 12 million barrels of Middle Eastern varieties from Abu Dhabi, Oman, and Iraq).

Nevertheless, some analysts preferred to maintain their worried outlook: "The global picture for demand is probably the most divided it has been since the start of the pandemic, with an improving demand picture in the West versus a deteriorating outlook in Asia," said Sophie Griffiths, market analyst at OANDA.