© Reuters. FILE PHOTO: Jacks pump oil at an oil field on the coast of the Caspian Sea in Baku, Azerbaijan, October 5, 2017. REUTERS/Grigory Dukor
Julia Payne and Rovina Edwards
LONDON (Reuters) – Oil prices fell more than $4 on Thursday as investors focused on the prospect of a sharp increase in U.S. interest rates later this month that could dampen inflation but hit oil demand at the same time.
September futures were down $4.05 at $95.52 a barrel by 1356 GMT, on track to settle below $100 for a third straight session.
U.S. West Texas Intermediate crude for August delivery was at $91.63 a barrel, down $4.67.
Both contracts hit lows on Thursday, below their close on Feb. 23, a day before Russia’s invasion of Ukraine, and Brent hit its lowest since Feb. 21.
Oil prices have fallen over the past two weeks on recession fears despite a drop in Russian crude and refined product exports amid Western sanctions and supply disruptions from Libya.
“Obviously, the focus now is on the demand side of the oil equation,” said Tamas Varga, an analyst at PVM Oil Associates. “Yesterday’s EIA (U.S. Energy Information Administration) weekly report showed a massive build in product inventories.”
“The collateral damage of growing inflation concerns is a stronger dollar, which is also negative for oil prices. Interestingly, physical markets remain strong, but changes in financial investor sentiment are the main driver for now.”
The Federal Reserve will raise interest rates by 100 basis points this month in response to 40 years of high inflation, after a grim inflation report showed that price pressures accelerated. The Fed’s policy meeting is scheduled for July 26-27.
The Fed is expected to make a similar surprise move after raising rates on Wednesday.
Investors also flocked to the U.S. dollar, which is often seen as a safe-haven asset. It hit a 20-year high on Wednesday, making oil more expensive for non-U.S. buyers. [USD/]
In Europe, demand signals were also bearish as the European Commission lowered its economic growth forecast and raised expected inflation to 7.6%.
Concerns about containment of COVID-19 in several Chinese cities to contain new cases of the highly contagious subvariant also weighed on oil prices.
China’s daily imports in June fell to the lowest level since July 2018, customs data showed on Wednesday, as refiners expected lockdowns to curb demand.
Data from the U.S. Energy Information Administration also pointed to weak demand, with product supply slipping to 18.7 million barrels per day, the lowest since June 2021. Crude inventories rose, boosted by another massive release of strategic reserves.
U.S. President Joe Biden will fly to Saudi Arabia on Friday, where he will attend a summit of Gulf allies and call on them to increase oil production.
However, spare capacity in the Organization of the Petroleum Exporting Countries is shrinking, with most producers operating at maximum capacity, and it is unclear how much additional capacity Saudi Arabia can quickly bring to the market.
