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Oil futures saw mixed trading on Thursday, but held onto a loss for the week as global central banks followed the Federal Reserve in delivering interest rate hikes to combat inflation, raising worries over economic growth prospects and crude demand.
Price action
-
West Texas Intermediate crude for July delivery
CL.1,
+0.09% CLN22,
+0.09%
rose 36 cents, or 0.3%, to $115.67 a barrel on the New York Mercantile Exchange. -
August Brent crude
BRN00,
-0.41% BRNQ22,
-0.41% ,
the global benchmark, fell 19 cents, or 0.2%, to $118.32 a barrel on ICE Futures Europe. Based on the front-month contracts, Brent and WTI both settled Wednesday around their lowest in two weeks. -
Back on Nymex, July gasoline
RBN22,
-0.70%
fell 0.2% to $3.8851 a gallon, while July heating oil
HON22,
-0.95%
shed 0.4% to $4.5286 a gallon. -
July natural gas
NGN22,
+4.39%
jumped 5.2% to $7.808 per million British thermal units.
Market drivers
U.S. and global benchmark prices were mixed as equities and other assets perceived as risky moved lower Thursday. Crude ended at a two-week low Wednesday after the Federal Reserve delivered a 75 basis point interest rate hike, but equities initially bounced after the decision. U.S. stocks were trading sharply lower Thursday though, as other central banks also tightened monetary policy.
Read: As Fed aggressively raises rates, here are 4 takeaways from Jerome Powell’s press conference
The Fed’s decision to accelerate rate hikes is “both an admission that the Fed was far too optimistic on the outlook for inflation and increasingly calls into question the Fed’s outlook for economic growth,” said Troy Vincent, senior market analyst at DTN. “It is this increased probability of pulling forward the end of the business cycle and the next recession that is worrying oil markets given this would entail falling oil demand.”
“ The Fed’s decision to accelerate rate hikes is “both an admission that the Fed was far too optimistic on the outlook for inflation and increasingly calls into question the Fed’s outlook for economic growth.” ”
The Swiss National Bank lifted its base rate by a half point, to negative 0.25%, while the Bank of England delivered a quarter-point hike on Thursday.
“Oil barrels are coming with a warning label today: ‘Fed induced demand destruction is on its way,’” wrote Stephen Innes, managing partner at SPI Asset Management, in emailed comments.
“Oil prices continue to struggle to break intraday higher ground now that oil prices are pinging louder on the Fed’s new inflation radar. With the pivot from core to headline as the primary gauge, higher oil prices raise the spectre that the Feds will be content to continue raising rates to eliminate sticky energy inflation, even if that means higher unemployment,” he said.
Still, Vincent told MarketWatch that the Fed decision is not likely the primary cause of the decline in oil prices this week. Week to date, WTI oil futures trade around 4% lower, while Brent oil has lost 3%.
Continued strength in Russian oil flows, and U.S. gasoline and distillate fuel oil demand weakness amid record-high prices are “more important” to oil market participants than the bigger than usual rate hike to the Fed funds rate, he said.
On Thursday, the U.S. Energy Information Administration reported that domestic natural-gas supplies rose by 92 billion cubic feet for the week ended June 10. That compared to an average forecast for an increase of 89 billion cubic feet from analysts polled by S&P Global Commodity Insights.
Working gas stocks include revisions to “reflect resubmissions of data during the three-week period from May 20, 2022 to June 3, 2022,” the EIA said. Working gas is the volume of gas available in the market. Total working gas stocks in storage stand at 2.095 trillion cubic feet.
