Oil's Rally Derails As Possible Fed Rate Hike Scares Traders

Meanwhile, OPEC's threat to reduce output is still influencing the market: File Image/Pixabay

Hawkish interest rate increase fears in the U.S. was enough to derail oil's winning streak on Thursday, and in advance of Federal Reserve chair Jerome Powell's speech West Texas Intermediate fell below $93 per barrel.

After fed officials hinted that rate hikes were imminent, WTI for October delivery dropped $2.37 to settle at $92.52 per barrel; Brent for October settlement declined $1.88 to settle at $99.34 per barrel.

Ed Moya, senior market analyst at Oanda, said, "Everyone is anticipating a big move in the dollar post-Powell and that will likely determine if we see oil prices continue to make a move towards the $100-a-barrel level."

Brent's decline was attributed to the ongoing expectation of analysts that the European Union, the U.S., and Iran will revive the 2015 nuclear deal and cause the Islamic republic to flood the market with crude.

The latest trigger causing this worry was Iran saying it had received a response from the U.S. to the EU's "final" text to resurrect the agreement.

Meanwhile, news of export increases contributed to an overall bearish sentiment in crude circles, when PetroLogistics data showed that exports by members of the Organization of the Petroleum Exporting Countries (OPEC) have risen by more than 200,000 barrels per day (bpd) so far in August.

The data also showed that Iran's oil exports have added 333,000 bpd this month.

But limiting oil's decline on Thursday was the lingering effects of comments made on Monday by prince Abdulaziz bin Salman, energy minister for Saudi Arabia, to the effect that OPEC may reduce output to better align futures prices with the fundamentals of supply and demand.

Craig Erlam, market analyst at Oanda, remarked that such a cut "may [make] the chance of a move back below $90 in the near-term hard to come by unless a nuclear deal is agreed upon and OPEC+'s appetite for cuts put to the test."

For the record, OPEC missed its production target by 2.9 million bpd last month after it produced 2.84 million bpd less in June; the reason involves various members being restricted in their ability to boost output, whether from a technical viewpoint or because of political unrest.