Oil prices are on track for weekly losses of 2.5% as concerns mount over the potential for further tightening of monetary policy by the Federal Reserve to tackle inflation.
The move could result in a hit to fuel demand, with Brent crude oil falling 1.13% to $84.18 per barrel and US West Texas Intermediate (WTI) crude oil dropping 1.24% to $77.52. Both benchmarks are heading for weekly declines of over 2.5%, Investors King reports.
One factor driving these concerns is the recent strong US economic data. In January, the US producer price index (PPI) rose by 0.7% after a 0.2% decline in December. Meanwhile, jobless claims unexpectedly fell to 194,000 compared to the 200,000 forecast. The data has bolstered concerns over rate hikes, which in turn has prompted a rise in US Treasury yields. This, in turn, has weighed on oil and other commodity prices.
According to Kazuhiko Saito, chief analyst at Fujitomi Securities, “Strong US data bolstered concerns over rate hikes and prompted a rise in US Treasury yields, which weighed on oil and other commodity prices.” Tina Teng, an analyst at CMC Markets, added that US crude stockpiles rising to a 17-month high suggested that demand was weakening, resulting in lower prices.
In addition to the concerns over US economic data, crude oil prices were lower due to risk-off trades following the sell-off on Wall Street after the PPI data, as well as a strong US dollar. There are also fears of a recession hitting the US amid inflation-fighting rate hikes and hopes for a pick-up in demand in China, the world’s top oil importer.
The International Energy Agency (IEA) has said that China will make up nearly half of this year’s oil demand growth after it relaxed its COVID-19 curbs. However, restrained production by OPEC+ countries, which are members of the Organization of the Petroleum Exporting Countries and allies, could mean a supply deficit in the second half.
Saudi Energy Minister Prince Abdulaziz bin Salman has said that the current OPEC+ deal to cut oil production targets by 2 million barrels per day will be locked in until the end of the year, adding that he remains cautious on Chinese demand.
The recent strong US economic data could have an impact on oil prices, with the potential for further tightening of monetary policy by the Federal Reserve to tackle inflation. This could result in a hit to fuel demand, with Brent crude futures falling 1.13% to $84.18 per barrel and US West Texas Intermediate (WTI) crude futures dropping 1.24% to $77.52. Both benchmarks are heading for weekly declines of over 2.5%.
